Saba Capital falls at first hurdle in activist trust campaign
Saba Capital’s first battle over the board of a UK investment trust has failed, with investors widely rejecting its attempt to unseat the board of a targeted trust.
In a shareholder vote today, 65 per cent of Herald trust shareholders voted to kill the activist hedge fund’s proposals, which aimed to depose and replace the trust’s board.
The shareholder vote registered more than 80 per cent turnout, and excluding the votes cast by Saba, only 0.15 per cent of votes backed the hedge fund’s resolution, Herald said in a stock exchange notice.
The two replacements nominated by Saba to take up places on the board were Paul Kazarian, portfolio manager at Saba and leader of the firm’s investment trust strategy, and Jassen Trenkow, a former Goldman Sachs and Barclays banker.
In advance of the vote, Saba said it was planning to offer shareholders a full exit from the trust at 99 per cent of the value of its underlying assets, overseen by a fully independent board that would be appointed later, though this would not come for at least a year.
The second largest shareholder of Herald, Rathbones, had said in advance that it would use its 13 per cent stake to vote against Saba, along with Border to Coast pension pool, which owns a two per cent stake in the trust.
Independent proxy advisers ISS and Glass Lewis also recommended voting against the proposals.
“Today non-Saba shareholders have almost unanimously rejected Saba’s self-interested proposals,” said Herald chair Andrew Joy.
“It is perfectly clear that the reason Saba’s proposals were rejected is that they were intended to lead to an outcome, namely Saba managing Herald, which the existing shareholders were simply not interested in,” he added.
“The reason shareholders invested, and continue to invest, in Herald is for long-term capital appreciation through investing in smaller technology companies, and they do not wish to be deprived of the opportunity to enjoy more of the same. They did not invest in Herald to become part of a short-term trading strategy.”
Saba launched a takeover campaign against Herald and six other trusts last month, accusing them of failing to perform and pushing for votes to “elect new directors with a concrete plan to deliver shareholder value”.
Five of the trusts are due to have their votes at the start of next month, while Edinburgh Worldwide’s is set for Valentine’s Day.
In the final week before the meeting, Herald moved up to a 1.1 per cent premium to its underlying assets, according to data from the Association of Investment Companies.
The trust has not traded on a premium to its underlying assets any time in the past five years, and was a result of Saba’s “aggressive” buying activity, according to analysts, as it attempted to increase its odds of winning the vote by holding a larger stake in the trust.
“Saba looks to be fairly agnostic to valuation at the moment and is just buying shares to give it the best chance of winning the upcoming votes – and this demand is driving up the share price,” Stifel analyst William Crighton said.
However, the trust then slid quickly down to an 8.4 per cent discount in the following week.
This morning, four Blackrock trusts made a peace deal with Saba, with the hedge fund pledging not to put forward any resolutions to the trusts, change their boards, try to influence their boards, and engage in short selling or takeover attempts.