Impax Environmental Markets (IEM) has published its exit tender offer following a fall-out with US hedge fund firm Saba Capital.
Last month, IEM’s board published a continuation tender offer, whereby investors would have been able to take a cash exit at close to the trust’s net asset value (NAV). However, Saba – which owns more than 20% of shares in IEM – refused to tender its shares, which prevented the offer’s conditions from being met.
In an open letter published on 27 February, Saba said: “Saba was prepared to tender our shares, with one condition that the board was aware of for several weeks: the company’s manager, Impax Asset Management, must first agree to pay the full tender costs for all shareholders who wish to exit.”
IEM’s chair Glen Suarez explained the board “failed to see” how Saba’s proposal “could ever be in the interests of any of its shareholders aside from Saba”.
“[Saba’s] insistence that Impax Asset Management cover all the costs of the transaction, including stamp duty, is unreasonable, not workable and has never been done before,” he said.
See also: Saba Capital proposes 100% cash exit for EWI shareholders
Now, IEM has published a circular outlining plans for an exit tender offer, which will allow shareholders to sell up to 100% of their ordinary shares for cash at tender price. This will be determined based on the final asset value of the tender pool.
However, the exit tender offer can only go ahead if it receives more than 50% approval from its shareholders. All of the trust’s directors intend to vote in favour and to tender their shares under the current offer. If this tender offer completes, the trust’s directors will “consider their ongoing position within the company”.
In an RNS update published today (17 March), IEM’s board warned: “Unless shareholders actively take steps to participate in the exit tender offer (in accordance with the procedures set out in the circular) their investment in the company will continue.
“Shareholders remaining invested in the company post the exit tender offer will be in a significantly smaller company where the board believes there is a significant risk that Saba will hold a controlling interest.
“Shareholders should carefully review the risk factors set out in part five of the circular.”
See also: Herald investment trust cancels tender offer after Saba opposition
The exit tender offer is open from today, with the trust’s publication of accounts expected near the end of the month. The latest time and date to receive yellow tender forms – returnable documents – is 1pm on 17 April.
Results of the exit tender offer elections are expected to be on or around 21 April, while the calculation date for the tender offer will be close-of-play on 19 April.
Commenting on the revised tender offer, chair Suarez said: “Having exhausted every reasonable alternative and having received no guidance from Saba as to its voting or tendering position, the board has been forced to act to protect non-Saba shareholders from the possibility of becoming trapped in a Saba-controlled company where Saba could have the power to change the strategy, objectives, and even the mandate.
“Consequently, the board is unanimously recommending that shareholders vote in favour of the exit tender offer which offers all shareholders an exit from the company at close to NAV.”
He added: “We urge all shareholders to vote in favour of the exit tender offer at the forthcoming general meeting. The directors will be tendering all of their own shares, underscoring our conviction that this is the right outcome for IEM’s shareholders.”
‘The end of a unique trust’
James Carthew, head of investment companies at QuotedData, said the current situation at IEM is “identical” to that with the Edinburgh Worldwide investment trust.
“Saba, through its intransigence and determination to ride roughshod over the wishes of other shareholders, has brought about the end of a unique trust. In my view, IEM shareholders should vote in favour of the tender and tender all their shares.
“The likely alternative is Saba seizing control, appointing itself manager (probably on a higher fee if the charges on its ETF are anything to go by), and changing the mandate. There is no obvious listed fund to switch into. So, in this case, the best solution for those that believe in IEM’s strategy, might be to take a look at Impax’s open-ended fund.”
Richard Stone, chief executive of the Association of Investment Companies (AIC), described the fact the market could lose both Impax Environmental Markets and Edinburgh Worldwide, due to one minority shareholder, as “infuriating”.
“Saba has thwarted the interests of the majority of shareholders. They have refused a cash exit, and their actions suggest they are bent on taking control of these companies. But the majority of shareholders have voted for the continuation of these investment trusts in their current form,” he said.
“We need policymakers, regulators and the Takeover Panel to take action to prevent a minority shareholder from dictating the future of an investment trust and taking control of its management contract against the interests of other investors. The priorities should be to protect board independence, strengthen the rules around conflicts of interest, and rethink the related parties rules.
“Impax Environmental Markets and Edinburgh Worldwide are both FTSE 250 companies and highly valued by their shareholders. Losing these companies would be a blow for the London stockmarket and British investors.”
A spokesperson for Impax Asset Management argued the investment case for Environmental Markets is “more compelling today than ever before”.
“In today’s fast-moving markets, we are seeing a renewed appreciation for companies harnessing multi-decade trends like electrification, digitalisation and climate change resilience which sit at the heart of global development,” they said.
“We believe that the board has been put in an impossible position and regret this course of events. Shareholders in Impax Environmental Markets chose to invest in an investment strategy that provides highly differentiated exposure to global markets and significant long-term value creating opportunities.
“[This] announcement means shareholders can no longer access these opportunities via the Trust, but they do have the option of switching to a UCITS fund – managed by the same team at Impax – which offers exposure to the same investment strategy.”
Saba responds to negative comments
Responding to comments made by investment trust professionals, a spokesperson from Saba insisted that Impax Asset Management is “not a manager acting in the best interests of its investors”.
“One only has to look at its track record of investor outflows, losses and mandate terminations – including the loss of a £5.2bn mandate with St. James’ Place – to see its negative impact on shareholders,” they said.
“Our objective has always been to secure the best outcome for IEM shareholders, especially given the company’s massive five-year underperformance – down 1.3% versus a 72.2% gain in its benchmark [according to data from Bloomberg].
“Because of our efforts, shareholders will have the opportunity to exit their underperforming investment in IEM at close to NAV – something they clearly want, given that 99.98% of shareholders voted for the continuation tender offer [according to IEM announcement on 23 February].”
Saba added that, throughout its engagement with IEM, the firm “made it clear” that it would participate in the continuation tender offer – “so long as Impax agreed to pay the tender costs for all shareholders who wished to exit”.
“Impax’s refusal to reimburse this small stamp duty is the only thing standing in the way of Saba tendering our shares. It is proof that Impax cares more about protecting its own interests than the best interests of IEM shareholders, who should not be forced to pay to exit such a poorly-performing fund,” they continued.
“If the AIC… truly cares about the majority of shareholders, as it claims to, then it should join us in urging Impax to agree to fund the tender costs for all shareholders.”
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