DEX: Successful Tender For This CEF, Now Overpriced

Thesis

Delaware Enhanced Global Dividend & Income Fund (NYSE:DEX) is an equity CEF from the Delaware/Macquarie asset management family. As part of the CEF business unwind driven by Delaware, this CEF is supposed to be merged into AGD. To read our previous analysis on DEX, read here. The way the process works is via an initial vote by AGD’s board of directors regarding the merger. That step was successfully completed back in August. The next items on the agenda here are shareholder votes of approval for the merger from both AGD and DEX. The DEX shareholders were not in accord with the merger without any additional corporate actions from the manager, hence a tender offer was put forward back in December:

PHILADELPHIA–( Dec. 01, 2022 )– Today, Delaware Enhanced Global Dividend and Income Fund (the “Fund”), a New York Stock Exchange-listed closed-end fund trading under the symbol “DEX”, announced that its Board of Trustees (the “Board”) has authorized an issuer tender offer to purchase for cash up to 30% (or 3,186,291) of its issued and outstanding common shares, without par value (the “tender offer”). The tender offer is contingent on the shareholder approval of Proposal 1, the reorganization of the Fund into arbdn Global Dynamic Dividend Fund (the “Acquiring Fund”), a New York Stock Exchange-listed closed-end fund trading under the symbol “AGD” (the “Reorganization”), at the Fund’s upcoming adjourned Special Meeting of Shareholders that will take place on December 12, 2022 (the “Special Shareholder Meeting”).

The commencement of the tender offer is pursuant to an agreement between the Fund and Bulldog Investors, LLP (“Bulldog”) and certain associated parties. Pursuant to the agreement, Bulldog has agreed to be bound by certain standstill covenants. The Fund has been advised that Bulldog will file copies of the relevant standstill agreement with the U.S. Securities and Exchange Commission (“SEC”) as exhibits to its Schedule 13D.

In a nutshell Bulldog, an activist shareholder, conditioned any move forward on the merger by a tender offer for a portion of the shares, which would see the discount to net asset value narrow, and take out a portion of their shares closer to NAV outright. The respective tender was extremely successful:

Delaware Enhanced Global Dividend and Income Fund announces expiration of tender offer ( February 10, 2023 ) – Today, Delaware Enhanced Global Dividend and Income Fund (“the Fund”), a New York Stock Exchange listed closed end fund trading under the symbol “DEX,” announced the preliminary results of its issuer tender offer to purchase for cash up to 3,186,291 of its common shares (“Common Shares”), representing up to 30% of its issued and outstanding Common Shares, without par value. The offer expired at 5:00 p.m., New York City time, on Friday, February 10, 2023. Based on current information, approximately 4,080,333 Common Shares, or approximately 38.42% of the Fund’s Common Shares outstanding, were tendered through the expiration date. This total does not include shares tendered pursuant to notices of guaranteed delivery. Because the number of shares exceeded 3,186,291 shares, the relative number of Common Shares that will be purchased from each shareholder will be prorated based on the number of Common Shares properly tendered. The final number of Common Shares validly tendered and accepted pursuant to the tender offer will be announced at a later date. The Fund expects to make cash payments for tendered and accepted Common Shares at a price equal to 98% of the Fund’s net asset value (NAV) as of the close of regular trading on the New York Stock Exchange on Monday, February 13, 2023. Payment for Common Shares tendered and accepted is expected to be sent to tendering shareholders within approximately ten business days after the expiration date.

To distill the above – it basically means more people than expected tendered in their shares, and the offer was successful. The accepted shares will be taken out at 98% of NAV as of the close today, Monday Feb 13.

With a successful tender now behind us and Bulldog on-board with the merger, the absorption of DEX into AGD will happen now. This means that any residual interest that an investor might have in DEX which was not tendered, will soon become AGD risk. From that angle, the below ‘Premium/Discount’ section discusses how DEX is now expensive, and shareholders who are left with fund shares should now Sell.

Premium/Discount to NAV

We can see how the DEX discount to NAV narrowed substantially once the tender offer was announced:

We can see a narrowing of the discount from roughly -11% to -6% post the initial tender announcement. After several fluctuations the discount is now sitting at -4.73%. Once the tender is consumed at close of business today, in effect as a DEX shareholder you are sitting on AGD risk. AGD has historically traded at substantial discounts to NAV, and even now is trading at a -11% discount. DEX got pulled up by the tender, but will move towards the AGD discount. There is a -7% downside here that will occur sooner rather than later. A successful tender equates a green light for the merger; hence, the two funds will pull towards the same discount to NAV.

Conclusion

DEX is set to be merged into AGD. Bulldog Asset Management, an activist shareholder, moved to request a DEX tender of shares close to NAV in order to approve the merger. The tender has been extremely successful, being oversubscribed, and the accepted shares will be taken out at 98% of NAV as of the close today, Monday Feb 13. On the back of the tender offer the DEX shares have moved to a very narrow discount to NAV of only -4.7%, while AGD’s shares are still trading at a -11% discount. A successful tender means the merger will occur, which in turn means DEX’s shares will need to move to the same discount as AGD’s shares. There is a -7% gap-down that will need to be filled here. If you have any residual risk in DEX after the tender, it is time to Sell.

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