Herald (HRI) has cancelled its 100% tender offer and tomorrow’s meeting to approve it after activist hedge fund Saba voted its near 31% stake against the resolution. The two sides are in talks to find a solution.
The special resolution required 75% of votes in favour to pass, meaning Saba has blocked the transaction for now.
However, the board of the £1.2bn global technology trust has not yet resorted to the “backstop tender offer” which it outlined last month, saying the two sides remain in talks about the terms of a 100% exit.
“If these discussions lead to a mutually agreeable outcome it is expected that a new tender offer in which eligible shareholders would be able to tender up to 100% of their holding will be launched in due course,” it said.
If the talks are unsuccessful, the board will put forward proposals for the back stop vote, as an ordinary resolution that only requires 50% votes to pass. This will enable shareholders to sell their holdings close to net asset value (NAV) and avoid being trapped in a fund controlled by Saba.
The activist hedge fund, which failed in an attempt to oust the board a year ago, would not be able block the backstop with its 30.7% holding. However, a significant exit by other shareholders with Saba remaining place is high risk and would probably spell the end of Herald as it has been known for 29 years.
Under veteran fund manager Katie Potts has generated a 2,546% total return for shareholders, well ahead of the 754.6% return of the Russell 2000 Technology index, a benchmark of US smaller technology companies.
Herald shares traded 2.2p lower at £25.37 at around an 8% discount below NAV.
Our view
Matthew Read, senior analyst at QuotedData, said: “This is a frustrating and confusing development for Herald shareholders, particularly those who like Katie Pott’s strategy and have held the trust for a long time and still don’t know whether they are going to be forced to cash out to avoid being locked into a Saba-controlled fund.
“Herald’s announcement says that negotiations are ongoing so we will have to see what comes of these but, by not tendering its shares, the implication is that Saba is looking for something else other than an exit at asset value. If its plan is still to grab as much of Herald’s assets as it can, the board’s plans for the backstop should prevent this.
“Ironically, as we report today, GAMCO Investors is trying to get a director elected to the board of two Saba managed US closed-end funds, with the aim of bringing their wide discounts under control. This raises questions about Saba’s fitness to run any UK closed end fund.”
