The protracted saga between Saba Capital Management and Edinburgh Worldwide (LON:EWI) may finally be drawing to a close, as the board of the investment trust has issued a 100% tender offer that can pass without needing Saba’s support.
Saba, an activist investor hedge fund based in New York, has accumulated positions in several UK investment trusts over recent years. As well as launching an exchange-traded fund holding these trusts, Saba has repeatedly brought resolutions aimed at displacing the board of several of them, especially Edinburgh Worldwide (EWIT).
These have all been unsuccessful to date, with the latest vote having taken place on 26 January where, excluding Saba’s own votes, EWIT’s shareholders defeated Saba’s proposals with over 53% of votes cast in favour of the current board. Excluding Saba’s own votes, nearly 93% of shareholders voted against Saba.
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But Saba then announced that it would bring another vote on the board of Edinburgh Worldwide at the company’s upcoming AGM.
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In response, EWIT’s board has proposed a tender offer for up to 100% of shares – which could effectively mean the trust is wound down – while offering shareholders the ability to retain any potential upside from the trust’s largest holding, SpaceX, in the case of a future listing.
“We have reached the end of the road with Saba's obsession to break the status quo and its continuing disregard for the expressed wishes of other shareholders,” said Jonathan Simpson-Dent, chair of EWIT. “This regrettable but necessary step is intended to protect shareholders from being trapped by Saba, offering a significant cash exit close to [net asset value, or NAV] while preserving exposure to SpaceX until a future liquidity event, after which shareholders would receive a further cash payment.”
The tender offer requires a simple majority of votes to proceed, and therefore isn’t dependent on Saba voting in favour.
How will Edinburgh Worldwide’s proposed tender offer work?
Assuming the tender offer is voted through, eligible shareholders will be able to tender up to 100% of their shares in Edinburgh Worldwide.
Those who choose to do so would receive approximately 85% in cash at close to NAV. This would be funded by the sale of EWIT’s more liquid assets. They will also receive approximately 15% deferred cash based on the realised value of SpaceX, once it has listed, which the board anticipates will happen within 12 months.
If most shareholders support the proposal (as the board has encouraged them to) and then tender all of their shares (as EWIT’s directors intend to with theirs) then the quantity of shares available on the market could fall below the 10% threshold that FCA rules require, effectively forcing the trust to wind up.
The tender offer requires a simple majority of votes to proceed, and therefore isn’t dependent on Saba voting in favour.
What is different about Edinburgh Worldwide’s tender offer?
Saba previously recommended that the directors it has nominated offer EWIT shareholders a chance to exit the trust at 99% of NAV if they were voted through to take over its management.
Edinburgh Worldwide claims that its latest proposal differs from Saba’s in two key ways.
Firstly, under EWIT’s proposal, shareholders would retain exposure to SpaceX in the event of its anticipated IPO. This would likely see a significant uplift in its valuation from the $800 billion at which it last raised funds. Recent reports suggest SpaceX’s valuation at IPO could be as high as $1.75 trillion, but this is currently not reflected in EWIT’s NAV.
EWIT also highlighted that it can fully commit to honouring the tender offer, but that Saba can’t if it is sincere about the independence of the board members it has nominated.
Could the FCA change the rules around activist investors?
In proposing the tender offer, EWIT’s board made it clear that this is not the solution it wanted and expressed frustration at Saba persistently bringing repetitive proposals despite these being voted down by the majority of the trust’s shareholders.
“The current regulatory framework permits a determined minority shareholder to effectively gain board and managerial control through repeated actions which explicitly oppose the desires of other shareholders,” said Simpson-Dent. “While we have galvanised the FCA into action, addressing this systemic problem will take longer than Saba's repeat smash and grab cycle. Regrettably, we believe it is only a matter of time before Saba succeeds.”
The Association of Investment Companies (AIC), an industry body that represents UK investment trusts, has reiterated calls for the FCA to adjust the rules to prevent these kinds of repetitive minority shareholder campaigns.
“The FCA needs to take immediate action on the Listing Rules to protect the long-term interests of shareholders,” said Richard Stone, chief executive of the AIC. “The current rules are not fit for purpose because they allow a minority shareholder to repeatedly attack an investment trust. Unless the FCA steps up this could happen again and again and we could see more UK-listed companies disappear.”
EWIT appears to have decided, though, that if any reform to the rules materialises, it will be too late to prevent Saba’s latest attempts to displace the board.
When will shareholders vote on Edinburgh Worldwide’s tender offer?
There is currently no date set for the vote on Edinburgh Worldwide’s tender offer. The investment trust said a circular with the details of the vote will be published in due course.
