Saba Capital is to finally begin offloading some of its 26% stake in fellow activist Crystal Amber (CRS) after its fund manager Richard Bernstein said he would resign to pursue other ventures.
The board of £95m Crystal Amber, which Saba forced into a lengthy wind-down four years ago, is in talks with Tarncourt Capital about appointing it as the new fund manager to run a portfolio of undervalued listed companies and high conviction stakes in private companies looking to sell or float.
Tarncourt, an investment firm founded and led by property specialist Charles Dickson, approached Crystal Amber about taking over the company’s investmentst. It has agreed to buy 2.8m CRS shares from Saba, reducing its stake to 20.9% and giving it a 4.5% holding.
Initially Tarncourt will manage CRS’s ownership of Morphic Medical which, following the sale of bank note printer De La Rue, represents 73.5% of its net asset value with £20.8m of cash making up 18.2%.
The board, chaired by Chris Waldron, believes the best time to sell Morphic would be in 2028 or 2029 when it is hoped the US Food and Drug Administration will approve its Reset device.
This is a non-surgical treatment for obesity that lines the upper part of the intestine in a thin sleeve which changes how food is absorbed and how the gut signals hunger to the body.
The procedure has received regulatory approval in the UK and India and Crystal Amber believes its success could see Morphic valued at $400m (£304m).
Saba and Merseyside Pension Fund, which owns 20.6% of Crystal Amber shares, have indicated their support for the appointment of Tarncourt, which requires a vote by all shareholders.
Winterflood analyst Shavar Halberstadt was surprised other fund managers were not considered, suggesting Syncona Investment Management, manager of £605m life sciences fund Syncona (SYNC), might have been a better manager for Morphic.
“We would suggest that a beauty parade would be best practice, but we suppose that the large Saba holding impacts both the pool of interested managers and the board’s degrees of flexibility,” he said.
Dickson is chief executive of AIM-listed Roadside Real Estate and a co-founder of build-to-rent developer Apache Capital Partners. CRS said his private investments included Cambridge Sleep Sciences, Adarga and Verso Biosense.
Also at Tarncourt is Simon Hicks, a former director at Cavendish Capital Markets.
Through Guernsey-based Crystal Amber Asset Management, Bernstein ran Crystal Amber since launch in 2008. Waldron said his “patient activism” had outperformed the Morningstar UK Small Cap index with returns of 38%, 112% and 270% over one, three and five years.
Much of this performance has been driven by the disposal of assets and return of over £60m of capital after the company failed to secure a 75% vote in favour of its continuation in November 2021. Crystal Amber was Saba’s first target before it shot to prominence this year with an unsuccessful campaign to oust the boards of seven investment trusts. It has been more successful since then, forcing reconstructions at Middlefield Canadian and, as of this week, at Smithson (SSON), the £1.6bn global mid-cap fund managed by Fundsmith.
