Impax Environmental Markets (IEM) chair Glen Suarez has published an open letter to Saba boss Boaz Weinstein after his activist hedge fund refused to sell its 21% stake in a continuation tender offer, threatening the future of the £843m investment trust.

In the letter Suarez says he was surprised to learn from Saba portfolio manager Paul Kazarian that Saba did not intend to tender its shares in a sale approved by shareholders this week, given the board had offered to buy its holding at net asset value minus costs and enable remaining shareholders to stay invested in the only remaining London-listed environmental fund.

In addition to expressing disappointment that Saba had blocked the board’s attempt to avoid an “ongoing, destabilising and expensive dispute”, Suarez reveals that Weinstein had responded with a counter “strategic” proposal to merge with another investment company in which Saba has a large holding and which has an entirely different investment focus. 

This appears to be a reference to Herald (HRI), the £1.2bn global technology smaller companies trust which is also battling for survival against Saba, holder of 31% of its shares.

Suarez says: “The board failed to see how this proposal could ever be in the interests of any of its shareholders aside from Saba.”

The chair said IEM fund manager Impax Asset Management had agreed to make a “substantial financial contribution” to ensure Saba could sell as close to NAV as possible. However, Saba had insisted that Impax cover all costs including stamp duty, which Suarez said was “unreasonable, not workable and has never been done before”. 

Suarez urged Weinstein to be ‘reasonable’ and accept the continuation tender offer, saying otherwise the board would, as outlined last month, launch a second exit tender offer to let other shareholders exit at NAV less costs and avoid ending up in a Saba-controlled and likely managed trust.

“You could tender in the exit tender offer, which would in effect destroy a UK-listed company, or you could decide not to tender and take control. Both outcomes carry significant reputational risk for Saba – imposing an outcome the majority of your fellow shareholders do not wish to see,” he said in reference to the big support shareholders gave to the company in its continuation vote last year.

In early trading, IEM shares rose 1.9% to 449p, narrowing the 6% discount to net asset value at which they closed last night.

In a separate statement to shareholders, Suarez said the continuation tender offer had been ended and applications to sell shares in it would be returned while the board prepared to launch the second exit tender, which was its only choice after Saba’s refusal to tender.

“The board has carefully considered the remaining options, and we firmly believe that doing nothing risks prolonged instability, significant costs, and a much worse outcome for shareholders. The exit tender offer will enable shareholders to exit the company at close to NAV and avoid being trapped in a fund where Saba is likely to take control, with the power to change the company’s strategy, objectives, and even its mandate. The directors will be tendering all of their shares in the exit tender offer,” he said.

Impax promotes IEM’s sister fund

Impax Asset Management said IEM’s board had been put in an “impossible position” and it regretted the course of events. However, with the investment case for electrification, digitalisation and climate change resilience looking “more compelling” than ever, it was encouraging the trust’s shareholders to its open-ended sister fund.

“Today’s announcement means shareholders can no longer access these opportunities via the trust, but they do have the option of switching to a UCITS fund – Impax Environmental Markets (Ireland) – managed by the same team at Impax – which offers exposure to the same investment strategy. We will be contacting shareholders and intermediaries directly and will be providing further information from today,” a spokesperson said.

Our view

James Carthew, head of investment company research at QuotedData, said: “The Impax story illustrates the damage that anyone with more money than sense can do to the investment companies sector if left unchecked. Appeals to reason appear to have failed. It is time for the Financial Conduct Authority to act. Clarifying the related party rules, as Herald’s board has asked the FCA to do, would choke off Saba’s main line of attack – inserting directors it controls onto boards so that they can hand it the management contract. It may also be time for corporate advisers to dust off the rule book and explore legal avenues to insert poison pill defences into investment company structures. I hate that idea, but sometimes it is a case of the lesser of two evils.”

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