Saba Capital has continued its battle with the UK investment trust industry by rejecting a continuation tender offer from the board of Impax Environmental Markets.
Under the terms of this offer, Saba (and other shareholders) would have been offered a cash exit at close to net asset value (NAV), which currently stands at 469.78p, according to the Association of Investment Companies (AIC).
With this rejected, the company will put forward a second tender offer (the exit tender offer).
In a letter from Saba Capita released on Friday, the US activist investor 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.”
After a string of underperformances versus the benchmark, there is “no reason why shareholders who have already suffered so greatly should have to pay to leave.” The trust has underperformed its benchmark, the MSCI ACWI, over the past one, three, five and 10 years. Over three and five years, it has trailed the benchmark by 53 percentage points and 79 percentage points, respectively.
The US hedge fund said if the board had agreed to pay the full costs, Saba would have accepted the tender offer – “any claim otherwise is simply not true.”
Saba further accused Impax chair Glen Suarez of representing “many of the structural problems” in UK investment trusts, particularly the idea that directors serve managers, not shareholders.
“It raises a fundamental question: whose side is Mr Suarez on?” Saba questioned.
In an open letter to Saba, Suarez criticised the US activist for it’s approach and said: “It is clear Saba does not share the same objectives as its fellow shareholders and as a result, we presented a tender offer proposal to you in January.” Instead, the hedge fund has “refused to engage constructively” and suggested Impax combined with another investment trust where Saba is a majority shareholder, Suarez said.
“The board failed to see how this proposal could ever be in the interests of any of its shareholders aside from Saba,” the letter continued.
“Your 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.”
This is the latest development in Saba’s ongoing battle with the UK investment trust industry, following its most recent contention with the Edinburgh Worldwide Investment trust.
See also: ‘There isn’t any logic’: Experts react to Saba’s battle with Edinburgh Worldwide
‘More money than sense’
Industry experts have already started to react, with Richard Stone, chief executive at the AIC, warning Saba has put boards in an “impossible position because its interests clearly do not align with other shareholders”.
He added: “The repeated rejection of tender offers at close to net asset value shows that this is not about closing discounts.”
These comments follow the AIC’s recent calls for the regulator and government to enact legislation to prevent activists like Saba from continually forcing through votes, even after they have already been rejected.
James Carthew, head of investment companies at QuotedData, also remained critical of the US hedge fund.
“The Impax story illustrates the damage that anyone with more money than sense can do to the investment companies’ sector if left unchecked,” he said. Given that “appeals to reason seem to have failed”, it is time for the Financial Conduct Authority (FCA) to intervene and prevent Saba from inserting its directors onto boards to gain the mandate, Carthew continued.
“It may also be time for corporate advisers to dust off the rule book and explore legal avenues to insert poison pill defences into investment company structures,” the analyst said. “I hate that idea, but sometimes it is a case of the lesser of two evils.”
See also: Herald Investment Trust cancels tender offer after Saba opposition
