Following the receipt of a requisition request from Saba Capital Management, L.P. (click here to see our original coverage of this) Keystone Positive Change (KPC) has published a notice for the requisitioned general meeting alongside a unanimous board recommendation to vote against all of the requisitioned resolutions. As is explained more fully below, KPC’s chair, Brade, says that KPC’s board is “appalled by Saba’s actions and conduct” [QD comment: a sentiment we would echo]. KPC’s board believes shareholders should VOTE AGAINST ALL of the requisitioned resolutions that have been proposed by Saba. It goes on to say that shareholders votes are very important. The requisitioned resolutions are each being proposed as ordinary resolutions. This means that they only require more than 50 per cent of the votes cast to be voted in favour in order to pass. Saba has declared interests in approximately 28 per cent. of the company’s issued ordinary share capital. Therefore, the board believes that other shareholders representing at least 30 per cent. of the company’s issued ordinary share capital are required to VOTE AGAINST the requisitioned resolutions in order to ensure they are blocked. It highlights that, failure to take action may lead to Saba taking control of the company.

Comments from Karen Brade, chair of Keystone Positive Change

“We are appalled by Saba’s actions and conduct. We believe its proposed resolutions would be highly detrimental to the interests of all other shareholders. Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the Board without a controlling shareholding, to pursue its own agenda. We believe Saba’s plan lacks transparency, would flagrantly disregard good governance, and may introduce substantially inflated fees. The proposed resolutions are not in the best interest of all shareholders and create significant uncertainty.

“In absolute contrast to Saba, your Board has actively engaged with shareholders in recent months to understand their priorities and concerns. In response, we have put forward a credible plan that reflects the feedback received, and aligns with Saba’s own prior request for a cash exit by Q1 2025. Our plan offers shareholders clear choices: an uncapped cash exit; a transfer to a more liquid fund pursuing a similar investment strategy, or a combination of both.

“Your Board remains unwavering in its rejection of Saba’s proposals. Given Saba’s considerable voting position, every vote against its resolutions is vital.  We strongly urge all shareholders to vote against all resolutions – a high turn-out is critical. Refraining from voting will risk ceding control of your Company to Saba.”

Reasons to vote against Saba’s resolutions

KPC’s board has set out the following reasons why it believes shareholders should vote against all of Saba’s requisitioned resolutions:

The board has already proposed a credible plan that provides choice and certainty for ALL shareholders

• Following its consultation with a broad group of Shareholders, including Saba, the Board proposed a section 110 scheme of reconstruction and winding-up of the Company (the “Scheme“) that will, if implemented, provide Shareholders with the option to either: (a) realise their investment in the Company by way of an uncapped cash exit; or (b) rollover their investment in the Company in a tax-efficient manner into the Baillie Gifford Positive Change Fund.
• The Board retains a high degree of conviction in Baillie Gifford’s Positive Change strategy which seeks to generate attractive long term capital returns and to contribute towards a more sustainable and inclusive world. The Scheme’s rollover option into the Baillie Gifford Positive Change Fund enables Shareholders who so wish to retain their exposure to its impact strategy.
• The Board’s decision to propose the Scheme was taken in order to address the small size of the Company, the low liquidity in the Ordinary Shares and the discount at which the Ordinary Shares have been trading relative to the Company’s Net Asset Value per Ordinary Share.
• Saba, an activist US hedge fund manager which first declared an interest in the Company’s Ordinary Shares in September 2023 and currently has declared interests of approximately 28 per cent., was approached as part of the Board’s consultation exercise. Saba had advocated for a solution to return cash which the Board incorporated through proposing the Scheme with an uncapped cash exit. The Board notes that the cash option discount applied to the uncapped cash exit under the Scheme is only 1 per cent., which the Board believes to be competitive for a transaction of this nature.

Saba is now intent on disrupting the Scheme and taking control of the Company for its own commercial self-interest

• Despite the prior engagement, Saba has now stated its intention to block the Board’s proposal. This will cause additional costs, unnecessary delay and considerable uncertainty for all Shareholders.
  • In justifying its blocking of the Scheme, Saba has, in subsequent conversations, referred to concerns around the Scheme’s method for crystalising value from the Company’s private investments which only represented approximately 2.6 per cent. of the Company’s portfolio as at 30 November 2024.
  • The Board is disappointed that Saba appears to be using this as an excuse to oppose the Scheme and is confident that the proposed orderly realisation of the Company’s private investments is the optimum route to achieve best value for Shareholders.
  • The Board considers the disproportionate emphasis placed by Saba on the small number of private investments to be disingenuous, and an exercise in misdirection.
• Instead of supporting the Scheme, Saba is intent on replacing the Company’s five experienced, independent non-executive Directors, with its own two nominees, Paul Kazarian and John Karabelas (the “Proposed Nominees”). Were these Proposed Nominees appointed, this would result in 100 per cent. of the Company’s board having been nominated by Saba, with one of the two Directors directly employed by Saba. This would give Saba effective control of the Company, without paying a control premium. Further, Shareholders should question whether these individuals would be capable of exercising independent judgement and making decisions based upon the interests of all Shareholders.
• One of the two Proposed Nominees, Paul Kazarian, a partner at Saba, has also been nominated to act as a director at five of the six other UK investment trusts being targeted by Saba (the “Targeted Trusts”). This raises serious governance concerns and potential conflicts of interest, particularly given Saba has stated that, if it were to obtain the management mandate of the Company, its strategy would possibly include combining investment trusts, which the Board believes would include the Targeted Trusts. Your Board also questions whether Mr Kazarian, if appointed to each of these boards, would be able to devote sufficient time and effort to his duties to each of the Targeted Trusts so as to successfully and diligently discharge his fiduciary duties and other responsibilities.
• Arrangements are being made for the Board to meet John Karabelas, Saba’s other Proposed Nominee. From the information made available by Saba to date, the Board has concerns that Mr Karabelas lacks relevant experience in UK investment trusts, with a background in US institutional credit sales.
• This is not the first time Saba has deployed aggressive tactics for its own gain. Saba has been involved in several public US lawsuits concerning closed-end funds, including those managed by BlackRock, Franklin Resources and Nuveen, among others, and has also recently been appointed as manager of two funds listed on the New York Stock Exchange. Saba’s simultaneous attack on the Targeted Trusts suggests an expansion of its hostile strategy into Europe.

Saba has not offered a plan for the benefit of all Shareholders. Its proposal pays no heed to the Company’s specific circumstances, is aimed at Saba being selected as the investment manager, and would likely come at significant expense to all Shareholders.

• The Board has sought to engage constructively with Saba, including most recently by hosting a call with them on 2 January 2025. While reiterating its intention to vote the Scheme down, Saba failed to set out any alternative suggestions that the Board believes would be in the interests of all Shareholders.
• Saba has publicly stated that, were the Proposed Nominees elected to act as Directors, the options to be assessed by the new Board would include Saba being selected as the Company’s new investment manager, and the Company’s investment mandate being changed to Saba’s strategy of purchasing discounted trusts and/or combining the Company with other investment trusts.
• The Directors have received limited information regarding Saba’s proposal. However, it is clear that, in contrast to the Scheme:
  • Saba’s proposed mandate bears no resemblance to the Company’s current global impact mandate, to which a number of Shareholders have indicated that they wish to retain exposure; and
  • Saba’s proposal does not offer an uncapped cash exit.
• The Board is concerned that Saba’s proposal may come with high costs, in terms of the costs already incurred in respect of the Scheme it is seeking to block, the costs of implementing its proposed changes, including terminating Baillie Gifford’s management agreement, and the ongoing costs of its strategy.

If the Requisitioned Resolutions are blocked by Shareholders and the current Directors remain in office, they will continue to pursue the interests of Shareholders as a whole and specifically will remain committed to implementing an uncapped cash exit from the Company.

The Board strongly recommends that Shareholders VOTE AGAINST each of the Requisitioned Resolutions to be proposed at the Requisitioned General Meeting, as the Directors intend to do in respect of their own beneficial interests in the Company’s Shares.