Update: The Association of Investment Companies (AIC) has called for “immediate action” from the Financial Conduct Authority (FCA) after Edinburgh Worldwide (EWI) announced a drastic 100% tender offer to end its 16-month battle with activist hedge fund Saba Capital.
Last week, responding to a previous call from the AIC, the FCA announced it would look to strengthen the listing rules to prevent large minority shareholders like Saba from gaining control of investment companies like EWI against other shareholders’ wishes.
However, launching the tender offer that will let EWI investors sell their shares at asset value but risks closing the 28-year-old investment trust, chair Jonathan Simpson-Dent said the board had “reached the end of the road” with its efforts to placate its hostile 31% shareholder.
Recognising that any help from the City watchdog would come too late, after the FCA consults and reports back by the end of the year, Simpson-Dent said the board wanted to give other shareholders a chance to sell their holdings before the fund fell into Saba’s hands.
In response, AIC chief executive Richard Stone said: “The FCA needs to take immediate action on the listing rules to protect the long-term interests of shareholders,” who he said had repeatedly rejected Saba’s attempts to take control of Edinburgh Worldwide.
“The current rules are not fit for purpose because they allow a minority shareholder to repeatedly attack an investment trust. Unless the FCA steps up this could happen again and again and we could see more UK-listed companies disappear,” he said.
Shares in the £782m Baillie Gifford managed global growth fund jumped 3.7% to just over 229p, expanding their small premium to net asset value, after Simpson-Dent said EWI had “exhausted” every avenue with Saba in its war of attrition with the board.
Despite having two attempts to oust EWI’s directors rejected by shareholders, the second in January, the US firm last month announced a third attempt to replace them and take control as a step to being appointed the trust’s manager.
Simpson-Dent said: “These repeated actions have created prolonged uncertainty, imposed significant costs on the company and distracted from executing a strategy that is delivering value. We cannot allow the company to remain caught in a cycle of disruption driven by a minority shareholder whose objectives and commercial self-interest are fundamentally misaligned with those of the wider shareholder base.”
According to today’s statement, EWI shareholders who tender, or sell their shares, will receive 85% cash at close to net asset value funded from the sale of its liquid, listed assets and 15% deferred cash based on the realised value of SpaceX, Elon Musk’s $800bn unquoted satellite and rocket company that takes up 16.6% of its assets. EWI says its tender offer is better than the one proposed by Saba because it gives shareholders exposure to further rises in SpaceX. The company’s valuation has already increased to $1.25trn following a merger with sister company xAI and has been widely reported to be planning a $1.5trn flotation this summer.
Stone added: “Saba’s attack on Edinburgh Worldwide could result in the disappearance of an investment trust which offers shareholders exposure to dynamic private companies like SpaceX. Investment trusts are the only way that private investors can get exposure to these innovative and hard-to-reach companies. An activist investor should not be allowed to ride roughshod over shareholders and destroy much valued investment trusts.”
EWI’s move is similar to the “backstop” tender offers proposed by Herald (HRI) and Impax Environmental Markets (IEM) as they also fight for survival against Saba. Winterflood analyst said it was a “shame” but agreed that “investor fatigue” would likely lead to Saba ousting the board.
Our view
James Carthew, head of investment company research at QuotedData, said: “Edinburgh Worldwide is pressing the self destruct button and the countdown has begun. I understand why but deeply regret that it has come to this. Assuming that Saba does not tender its shares – and reports suggest that it will not – shareholders who tender their shares can get 85% cash and 15% in a deferred interest in SpaceX. Saba and any other shareholders who don’t tender would end up with a much higher exposure to the other unlisteds, which currently account for about 13% of the portfolio. If Saba did tender its shares, there is a chance that the tender would have to be scaled back.”
Stay a step ahead. Our daily newsletter brings you the latest on investment trusts and active ETFs. Subscribe here.
