US hedge fund Saba Capital is expected to finally seize control of Edinburgh Worldwide Investment Trust (EWI) today, bringing an end to the drawn-out battle between the trust and its largest shareholder.
Ahead of today’s annual general meeting, the trust has revealed that, based on the latest voting information, the vote to reappoint the incumbent directors will not pass. Subject to independent confirmation later today, Jonathan Simpson-Dent, Mary Gunn, Jane McCracken, Caroline Roxburgh, Gregory Eckersley and Mungo Wilson will step down.
Meanwhile, the vote for three Saba Capital nominees, Gabriel Gliksberg, Jassen Trenkow and Michael Joseph, is expected to succeed.
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Edinburgh Worldwide attributed this result to the reduction in ownership by private wealth and retail shareholders. This is a group that previously strongly engaged with the trust, meaning that voting in favour of the board had declined in both absolute and relative terms over the course of the battle with Saba, according to EWIT.
Another US investment fund with a material holding had also opted to vote against the board. This means four US investment shareholders have opposed the board, representing more than 40% of the share capital.
James Carthew, head of investment companies at QuotedData, said: “We do not know who they [the US funds] are because no disclosures have been made, but it would be fascinating to know what they think is the benefit of buying EWI very close to asset value and handing it over to Saba’s nominees.”
“They could have captured any possible upside from SpaceX without changing the board.”
Saba could not have directly asked these other US funds for help, because the resulting concert party would have been forced to bid for the company, he explained.
Jonathan Simpson-Dent, current chair of EWI, called this “a disappointing day for our long-standing shareholders”
“Retail and private wealth shareholders have been ground down by Saba’s repeated attacks,” he said. This represents the US hedge fund’s third attempt to oust the board of Edinburgh Worldwide.
“A significant number have already chosen to exit the company, replaced by institutions seeking to capture the upside potential in EWIT’s substantial SpaceX exposure,” Simpson-Dent added.
“This should represent a wake-up call for the investment trust sector and its regulators,” he continued.
Simpson-Dent pointed to the performance of the trust since the implementation of the firm’s ‘path to growth strategy’ when it delivered NAV returns of 44%.
Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “Thousands of shareholders will be disappointed by this announcement, having twice rejected directors nominated by Saba only to see them appointed to the board at the third attempt.”
“The bigger picture here is that a minority shareholder has been able to control the future direction of an investment trust against the wishes of the vast majority of other investors who did not want this outcome,” Stone continued.
Ben Yearsley, director at Fairview Investing, who earlier this year noted that Saba may be attempting to win a “war of attrition” with the trust, said it seems to have succeeded in that goal.
See also: ‘There isn’t any logic’: Experts react to Saba’s battle with Edinburgh Worldwide
“The whole saga has been rather unedifying to be honest, and I’m not sure many people come out of this with much credit.”
“I think the original ‘attack’ by Saba was met by almost hysteria from certain quarters rather than a more considered tone, which was weird, bearing in mind they were big shareholders,” he elaborated. “I’m not saying Saba has necessarily gone about things in the right way, but a more conciliatory tone initially might have led to a more mutually beneficial outcome.”
Moving forward, experts are considering the future of the trusts and the independence of the soon-to-be-appointed directors.
See also: ‘The rules shouldn’t work like this’: Experts consider the future for IEM and Saba
QuotedData’s Carthew said: “As with Impax Environmental, many eyes are now focused on the actions of this new board.”
“Any suspicion that they are not acting in all shareholders’ best interests should be flagged to the FCA.”
The AIC’s Stone agreed and noted that the new board will have a legal and regulatory responsibility to act independently and is expected to follow the proper process in the event of a management change.
“The new directors will need to bear in mind that non-Saba shareholders have resoundingly supported the existing mandate, turning out in record numbers to back the board on two previous occasions,” Stone said.
“Saba has made various proposals about what should happen if its nominated directors are appointed,” the AIC chief executive continued. “However, these are matters for the board.”
The new board should make its intentions clear as soon as possible, and before any change of manager or mandate, shareholders should be allowed to exit before and after the SpaceX IPO.
“Saba has got what it wanted, and now it has to show it’s a good corporate citizen,” Fairview’s Yearsley concluded.
Saba Capital was approached for comment.
