Edinburgh Worldwide (EWI) has urged shareholders to come to its rescue for a second time this year after activist hedge fund Saba Capital followed through on its threat to call an extraordinary general meeting.
Saba, which holds a 30% position in the £744m global smaller companies investment trust, wants to oust the board’s six directors and replace them with three of its own nominees to protect shareholders who it says have been “profoundly disappointed” with a 38% loss over five years.
EWI chair Jonathan Simpson-Dent said this ignores the improvement the trust has made since setting a “path for growth” a year ago and also the dangers of letting Saba gain effective control through directors who he said would not be independent of the firm founded by former derivatives trader Boaz Weinstein.
Urging shareholders to vote against Saba’s resolutions at an EGM that will take place in January, Simpson-Dent warned: “Saba has not disclosed its plans should it gain control. It previously stated its intention to be appointed as investment manager, which would fundamentally change the company’s investment strategy and financially benefit Saba.”
This is the same argument EWI made when it successfully roused shareholders to a vote in February in which Saba’s attempt to sack the board was defeated by 63.8% to 36.2%.
The chair’s second point has grown in relevance since the first showdown with Saba. Simpson-Dent added that if the specialist investment company investor replaced Baillie Gifford as fund manager, shareholders would lose access to a “unique and distinctive portfolio of disruptive and transformative companies positioned for long-term growth”.
These included BillionToOne, Echodyne, SHINE Technologies, PsiQuantum, Axon Enterprises, Alnylam Pharmaceuticals and, most topical of all, SpaceX.
Amid intense speculation that the unquoted Elon Musk rocket company plans a $1.5trn flotation, Baillie Gifford has hiked the valuation of SpaceX by an estimated 87%. According to a statement by EWI yesterday that has lifted it to 15.9% of the portfolio, up from 8.5% at the end of last month when it was already the trust’s largest holding. That means the value of the trust’s investment in SpaceX has leaped from £64m to around £126m.
EWI shares gained 2.5p or 1.2% to 217p this morning. They have rallied nearly 32% in the past six months in a technology stock led market rebound and stand on a 6% discount to net asset value.
Our view
James Carthew, head of investment company research at QuotedData, said: “The EWI response to Saba’s latest requisition is robust, as we would expect. I’m a shareholder and will be voting against Saba’s proposals. There are many reasons for this but chief of them is Saba’s reluctance to spell out exactly what it intends to do with the company if it manages to seize control of it, as it will do if its proposals succeed. The independence of boards is a fundamental, non-negotiable, tenet of the UK investment company sector. However, there is no doubt in my mind that the directors Saba is putting up have been selected because they will do its bidding rather than act for all shareholders’ best interests.”
