The latest development in the battle between Impax Environmental Markets and its largest shareholder, Saba Capital, has created some important questions about the trust’s future, according to some experts.
Saba has increased its stake in the trust as the tender offer has continued, rising from around 20% per offer to 29.9%, just beneath the 30% holding that would require Saba to make an offer to acquire ‘control’ of the trust under the terms of the City Code.
Matthew Read, senior analyst at QuotedData, argued this precise result means “it is time to ask some important questions”, about IEM’s future.
See also: ‘We’re as confused as everyone else’: Saba pushes for IEM board to resign
“First, given that Saba could not have known how much its fellow shareholders were tendering, how has it very conveniently ended up with 29.9% of IEM post the tender offer?” he asked.
“This feels way too precise to be a lucky guess, so did Saba have an extra box on its tender forms that allowed it to tender just the amount needed that wasn’t available to other shareholders?”
Richard Stone, chief executive of the Association of Investment Companies (AIC), noted this specific holding amount offers some benefits. When the shareholder register comprises mostly retail investors who are less likely to vote, a single shareholder having just under 30% of the share capital grants “huge influence”.
“This is not how the rules were designed to work,” Stone said.
Saba’s actions, he said, have exposed “gaps in the Listing Rules” that need to be addressed to prevent directors from being beholden to a single large shareholder.
“One way to deal with this problem would be to reduce the threshold at which shareholders have to make an offer for a company from the current 30% to 25% or even 20%,” Stone suggested.
The other major question surrounds Saba’s proposed nominees, according to QuotedData’s Read.
“Ask any truly independent investment trust director, and they will tell you that running a trust involves a lot more than simply occupying board seats.” Investment trust directors need knowledge of shareholder rights, governance standards, regulation and discount management, but the list goes on, the QuotedData analyst noted.
“What are the qualifications of Saba’s nominees, and do they have the relevant experience to oversee and govern a UK-listed investment trust?”
Finally, he pointed to the question of the handover process. If the current strategy is reviewed, there are established processes that must be followed that investors expect to be proper and transparent, he noted.
The AIC’s Stone agreed, adding while directors have the power to change the investment manager, directors also have a “duty” to act in the interest of all shareholders. A change in investment manager would demand boards act independently and follow due process, he added.
Read said: “In the interests of all shareholders, will Saba’s proposed board run a genuine beauty parade, considering proposals from a range of credible managers and advisers, or is the outcome already predetermined in favour of Saba?”
“[These questions] go to the heart of whether this exercise is truly about unlocking value for all shareholders as Saba claims, or simply about gathering AUM for Saba as has long appeared to be the case,” QuotedData’s Read concluded.
Saba Capital declined to comment.
See also: AIC proposes changes to FCA listing rules to address ‘conflicts of interest’
