Board of Trustees of MFS Government Markets Income Trust Recommends That Shareholders Reject BIGP’s Tender Offer
BOSTON — The Board of Trustees of MFS Government Markets Income Trust (the “Fund”) recommends that the Fund’s shareholders reject the offer by Bulldog Investors General Partnership (“BIGP”) announced on September 11, 2007 to purchase shares of the Fund. The Board appointed a special committee comprised solely of independent trustees to evaluate and assess the terms of the tender offer.
The Board, upon the recommendation of the special committee, has carefully considered BIGP’s tender offer (the “BIGP Offer”) and found that it is not in the best interest of shareholders for the following reasons.
— The Fund operates best as a closed-end fund. BIGP has announced
that it is making the BIGP Offer to gain influence over management
of the Fund and that it wants to cause the Fund to convert from a
closed-end structure to an open-end structure. The Board believes
that a conversion to an open-end structure will hurt those
shareholders who invested in the Fund on the basis that it was
structured as a closed-end fund, and who wish to remain invested
in a closed-end fund.
While conversion to an open-end structure would eliminate any
then-existing discount to NAV, it would also have adverse
consequences that the closed-end structure of the Fund was
designed to prevent. For example, conversion to an open-end
structure would prevent the Fund’s assets from being fully
invested in income-generating securities, thereby reducing the
Fund’s yield. In addition, as a result of restrictions that the
Investment Company Act places on leveraging by open-end funds,
conversion to an open-end structure would significantly jeopardize
the portfolio manager’s efforts to seek increased investment
return through leverage.
Experience also has shown that professional fund arbitrageurs and
certain hedge funds which are current shareholders of the Fund
would likely redeem their shares in the Fund immediately upon its
conversion to an open-end structure, thereby reducing the Fund’s
assets – potentially substantially – and causing the Fund’s
expense ratio to rise significantly. These arbitrageurs are
interested solely in short-term gain at the expense of
shareholders who wish to hold the Fund’s shares as a long-term
— The Board has taken actions to address the Fund’s discount to NAV.
The Board regularly considers actions that may be taken to
minimize the Fund’s discount to NAV and has from time to time
authorized the Fund to repurchase its shares in the open market as
a means of narrowing the Fund’s discount. In 2006, the Board was
advised by an independent third party regarding methods by which
closed-end funds attempt to manage their discounts. In April 2007,
the Board approved a change to the Fund’s investment strategy to
permit the Fund to invest in higher yielding securities and
recommended approval by shareholders of a proposal to allow the
use of leverage in the management of the Fund. Shareholders have
not yet had the opportunity to consider this proposal as it is
proposed for approval at the Fund’s annual shareholder meeting
scheduled for November 1, 2007. The Board believes that both of
these measures may increase the Fund’s yield and also result in a
narrowing or elimination of the Fund’s discount to NAV.
In addition, in July 2007, the Board authorized the adoption of a
level distribution plan pursuant to which the Fund now makes
monthly distributions at a minimum annual rate of 7.25%. The
Fund’s first distribution under this plan was declared on
September 4, 2007, and will be paid to shareholders of record on
September 28, 2007. The Board believes that this plan, upon
implementation, may have the effect of narrowing or eliminating
the Fund’s discount to NAV.
— The BIGP Offer is excessively conditional. The BIGP Offer is
subject to numerous conditions. One important condition ties
BIGP’s obligation to consummate the offer to the election of four
trustee candidates that BIGP has stated that it proposes to
nominate at the Fund’s shareholder meeting on November 1, 2007 to
replace four current members of the Board. Specifically, BIGP is
not required to consummate the offer if shareholders do not elect
its trustee candidates. However, even if BIGP’s candidates are
elected, the broadly worded nature of the other conditions in the
BIGP Offer make it uncertain that the offer will be consummated.
For example, if there occurs “any change, circumstance, event or
effect” that “could reasonably be expected to have, in the sole
discretion of BIGP, a material adverse effect on the Fund or the
value of the Shares or, assuming consummation of the BIGP Offer,
on BIGP or any of its affiliates,” BIGP could elect not to
consummate the offer. The BIGP Offer to Purchase also states that
BIGP has the right to declare a condition not satisfied even if
the failure to be satisfied was caused by an action or inaction of
BIGP. In addition, by tying the tender offer to the election of
its trustee candidates, BIGP is inducing shareholders to elect
trustee candidates about whom the Fund currently does not have
enough information to determine that they are not “interested
persons” of the Fund (as defined in the Investment Company Act of
1940), creating uncertainty about compliance with the requirement
under regulatory settlements that 75% of the Fund’s trustees be
comprised of non-interested persons. Because of the broad nature
of BIGP’s other conditions, as well as the fact that the tender
offer closes after the November 1st shareholder meeting, it is
possible that BIGP will induce shareholders to vote for its
trustee candidates yet not consummate the tender offer.
— The BIGP Offer is coercive. The BIGP Offer represents a threat to
shareholders because the BIGP Offer is designed to coerce
shareholders to participate in the offer on disadvantageous terms.
BIGP states that the purpose of the BIGP Offer is for BIGP to gain
influence over management of the Fund and increase BIGP’s voting
power to cause the Fund to become an open-ended fund. The BIGP
Offer is coercive because it is creates an economic incentive for
shareholders to tender in order to avoid (i) being left as
minority shareholders a fund with a shareholder – BIGP – that is
seeking to increase its influence and force its agenda upon
management and other shareholders and (ii) facing a radical change
in the structure of the Fund. As a result, even shareholders who
wish to remain invested in the Fund may feel compelled to
participate in the BIGP Offer in order to minimize their
investment in the Fund during a period when radical changes are
being made to its structure. Further, if the BIGP Offer is
over-subscribed, shareholders who had hoped to redeem completely
from the Fund will have to remain at least partially invested in
the Fund during this period of change.
— The BIGP Offer has economically disadvantageous terms. BIGP will
assess a $50 processing fee to each shareholder who tenders. This
amount is as much as five times higher than the amount that the
depositary charges to actually process the letter of transmittal
submitted by a shareholder who chooses to tender his or her
shares. For shareholders who hold shares in multiple names (e.g.,
John Jones, John and Mary Jones, and John Jones as trustee for
Mary Jones), a separate letter of transmittal will be required for
each account and the $50 fee will be charged each time. The $50
processing fee, when deducted from the proceeds of small account
holders (or holders whose tendered shares are reduced if the BIGP
Offer is oversubscribed), could significantly reduce the return
realized by these shareholders.
— Shareholders have inadequate information to evaluate BIGP’s
financial resources. While BIGP states that the BIGP Offer is not
subject to a financing condition, BIGP has not provided adequate
information to evaluate its ability to complete the BIGP Offer,
other than to state that it will pay the aggregate costs of the
BIGP Offer (and any other tender offers it may launch against
other companies or funds) using its investment capital. No BIGP
financial statements are included as part of the Schedule TO.
In light of the factors described above, the Board has determined that the tender offer is not in the best interests of the Fund’s shareholders. Therefore, the Board recommends that shareholders of the Fund reject the tender offer and not tender their shares to BIGP.
In connection with the tender offer, the Fund has filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the Securities and Exchange Commission (the “SEC”). Investors and security holders are strongly advised to read the Solicitation/Recommendation Statement because it contains important information about the BGIP Offer. Free copies of the Solicitation/Recommendation Statement are available at www.mfs.com and on the SEC’s website at www.sec.gov.
About MFS Investment Management:
MFS manages $202 billion in assets on behalf of more than 5 million individual and institutional investors worldwide as of June 30, 2007. The company traces its origins to 1924 and the creation of America’s first mutual fund. For more information, please go to www.mfs.com.
The foregoing is not an offer to sell, nor a solicitation of an offer to buy, shares of any fund, nor is it a solicitation of any proxy.
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