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May

In addition to the M&A activity of recent months, we have seen several of our portfolio companies proactively taking action to narrow their discount and unlock value.

Aker ASA, the Norwegian listed holding company was the largest contributor to performance as its shares rose 10% over the month. The driver of this performance was the announcement by Aker Solutions, a company in which Aker holds a stake of 40%, that it would split itself into two separately listed companies in order to improve efficiency and drive shareholder returns. The discount on Aker remains wide at 31% which is narrower than its widest levels of 42% that we have seen in recent years but leaves plenty of scope for further narrowing. With a dividend yield of almost 6% and clear evidence of management attempting to improve the rating of the company – both at the holding company level and at the underlying portfolio level – the case for further discount contraction is compelling.

Shares in Dogan Holding jumped a further 18% over the month. We described last month how the buy-out of minorities in the 80% owned media subsidiary was positive for shareholders in Dogan Holding. In late-May, the announcement of a very favourable merger ratio for the holding company’s shareholders caused a sharp run-up in the share price. We estimate that the implied issuance price of the holding company’s shares represents a 40% premium to their undisturbed price; although the company is issuing its shares at a wide discount to its NAV, the subsidiary’s even wider discount to its SOTP NAV means that the transaction is accretive to the holding company’s NAV by +4%. Perhaps more importantly, the merger removes a layer of costs, wipes out the double discount and cleans up the group’s structure.

As a holding company, Investor AB epitomises all that is positive about family controlled holding companies. Its long term investment horizon and its proactive management of portfolio companies, has consistently delivered NAV outperformance and strong growth in dividends. Its discount has narrowed from over 35% two years ago to just under 20% today. However, we believe that given the scope for further NAV growth, particularly from some of its unlisted assets, the case for further discount contraction remains. The share price of the company increased by 4% over the month, despite the setback to NAV of the sharp fall in Astra Zeneca’s share price after the failure of Pfizer’s takeover attempt.

The share prices of Symphony International, Hitachi, DWS Vietnam and Marwyn Value Investors all fell between 6% and 7% over the month. Symphony drifted lower on no news and we believe the investment case to remain intact. We took advantage of the weakness in DWS Vietnam and Marwyn Value to add to our positions.

Net cash is currently c. 1% of NAV and highlights the conviction we have in the prospects for our portfolio as the numbers of corporate events expand and the potential for discount contraction grows.

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