European Opportunities Trust has responded to a letter published by Saba Capital Management regarding its opposition to EOT’s proposed tender offer.
The board believes that the 50% tender offer suggested by Saba would not be in the best interests of the majority of shareholders and affirms its position in recommending that a 25% tender offer be implemented following the company’s AGM on 15 November. EOT’s board believes that the proposed tender offer will allow EOT to maintain a viable size of assets under management for ongoing shareholders, whilst accommodating the desire of some shareholders to reduce their holding at a price close to NAV.
[QD Comment, JC : “European Opportunities’ discount has been gradually narrowing since July last year but, if it doesn’t narrow further ahead of January’s tender offer, it seems likely that the planned 25% tender will be taken up in full. That means that Saba is unlikely to be able to sell its entire stake and crystallise the quick profit that it is hoping for – hence its call for an even bigger tender. Saba’s modus operandi is to buy big stakes on wide discounts and agitate for the company to buy it out at asset value. Any rationale that it presents for that needs to be taken with a pinch of salt. European Opportunities discount is wide because its relative performance has been poor and the board’s original argument – give us time to turn that around and if not we’ll take more drastic action – made sense to us. The more immediate tender makes less sense. A share buyback programme of the same size with a commitment to buyback stock at say a 5% discount would likely have been more effective. However, we are where we are and now the board is right to resist calls for an even bigger tender.”]
The letter is outlined below:
The Board believes Saba’s contention – that the completion of the 25% tender offer would lead to a widening of the discount to NAV “to at least 15% – a level common in UK investment trusts that do not have a continuation vote” – to be conjecture. Furthermore, the Board reiterates that, in accordance with the Company’s articles of association, the Company will put a further Continuation Vote to the 2026 Annual General Meeting and again to the Annual General Meeting every three years thereafter.
The Board of EOT remains confident in the Company’s long term investment strategy. The portfolio manager embraces a high conviction approach, selecting companies which he believes are differentiated and have the balance sheet strength, cash flows and exposure to enable them to flourish in a range of economic scenarios and provide superior returns to investors over the medium and long term. The Board believes that this approach offers shareholders access to attractive medium- and long-term growth opportunities though a differentiated investment strategy with a strong long-term track record.
The Board continues to be proactive in implementing measures to create value for shareholders, improve liquidity and reduce the discount to NAV, including:
- a substantial ongoing share buyback programme with the stated purpose of maintaining the discount to NAV in single digits in normal market conditions;
- recent material reductions in the fees payable to the Investment Manager (and the removal of the former performance fee arrangement in 2019);
- the introduction of proposals for the forthcoming tender offer for 25% of shares in issue; and
- the recent introduction of a conditional tender offer for a further 25% of shares in issue by references to the Company’s performance over the three financial years ending 31 May 2026.
As previously communicated, the Board of EOT believes that the continuation of the Company is in the interests of shareholders as a whole and, following active engagement with and careful consideration of feedback from a range of shareholders, understands that the majority of shareholders wishes to see the Company continue. The Board notes that both Institutional Shareholder Services (ISS) and Glass Lewis have recommended that shareholders vote in favour of the Continuation Vote.
EOT : European Opportunities Trust responds to Saba Capital Management