Perpetual Income and Growth (PLI) investment trust will be combined with Aberdeen Standard Investments' Murray Income Trust (MUT) to create a £1.2bn UK equity income mandate.
The £642m PLI will be absorbed into the £581m MUT, pending shareholder approval, with the enlarged trust being run by ASI's Charles Luke. PLI shareholders will be offered a cash exit for up to 20% of the shares in issue.
The news comes following PLI's search for a successor to Invesco's Mark Barnett, the mandate's former manager. Speculation had been rife that the sacking of Barnett from PLI and Alastair Mundy leaving Temple Bar would result in consolidation within the Association of Investment Companies' UK equity income sector.
The two trusts have similar investment objectives, which is to provide a high and growing income combined with capital growth from a portfolio of predominantly UK equities. ASI said MUT, which has raised its dividend for 46 straight years, intended to maintain its status as an AIC dividend hero.
PLI's board said it had been "very impressed" by ASI's investment strategy and approach, as well as the strength of its team and its top-quartile performance.
"Moreover, the existing scale of MUT and the initiative demonstrated by the MUT board added to the attractions of the proposal," the statement said.
"Although consolidation rarely results from manager beauty parades, the board was of the view that a combination of the two companies would bring additional benefits to PLI shareholders, by offering exposure to ASI's UK equity strategy in a well-managed, and enlarged, investment trust with a highly competitive management fee."
MUT chairman Neil Rogan said the board was "thrilled" the trust had been chosen to take over PLI, after what was a "highly competitive tender".
"This transaction creates an equity income investment trust of significant scale and purpose, benefiting from a low ongoing charges ratio estimated to be 0.50% per annum and offering an attractive investment proposition for investors seeking income and total returns from UK equities," Rogan said.
"I and the rest of your board believe that the transaction is compelling for both sets of shareholders and we look forward to your support.
"With a strong management team, an excellent performance track record and an enlarged capital base leading to greater liquidity and lower costs, we can look forward with confidence in meeting our shareholders' objectives, long past our centenary year in 2023."
ASI's global head of equities Devan Kaloo said the move was "a clear and welcome endorsement of our overall investment approach and in particular our strong UK equity income franchise".
It comes months after the firm secured the former Woodford Income Focus mandate for its UK equity income team, which is co-managed by Luke.
"Charles has an excellent long-term track record built around a focus on quality," Kaloo continued.
"Charles and the UK equity team's due diligence and company research gives us the confidence that we can deliver growth and income for shareholders of the enlarged trust."
PLI chairman Richard Laing, who has been invited to join the MUT board alongside directors Alan Giles and Georgina Field, said the move would "provide shareholders with strong potential for future capital growth and income generation".
He added: "With very similar investment objectives to deliver growing income and capital growth from mainly UK equities, Murray Income Trust has demonstrated a consistent performance track record in doing both.
"We are confident that the depth and breadth of experience in Charles Luke, the lead portfolio manager of MUT, as well as the wider UK equity team at Aberdeen Standard Investments will continue to deliver for shareholders over the long run.
"There are few mergers of investment trusts, but we believe that this Transaction will have great appeal to shareholders of PLI.
"They will transition their interests at net asset value (after deduction of costs and adjusting for dividends), and with Murray Income shares typically trading at a narrower discount to PLI, should bring an immediate uplift."