Impax Environmental Markets (IEM) and fund manager Impax are under pressure to give Saba a cost-free exit after the activist hedge fund said that was the only obstacle to selling its 21% stake in the continuation tender offer last week.
In response to an open letter from IEM chair Glen Suarez appealing to Saba founder Boaz Weinstein to be “reasonable” in a dispute that risks the destruction of the £843m investment trust, the New York-based fund manager said it was prepared to tender its shares provided Impax paid for all costs of exiting shareholders, including stamp duty.
Suarez called the demand for 0.5% stamp duty “unreasonable, not workable and has never been done before.”
Saba said: “After the company significantly underperformed its benchmark over the past five years, there is no reason why shareholders who have already suffered so greatly should have to pay to leave. Over the past five years, IEM’s share price return (+2.3%) disastrously lagged its benchmark, the MSCI ACWI Index (+85.3%), by 83%. On a three-year basis, IEM’s share price return (+4.9%) lagged the benchmark (+59.2%) by more than 54%.”
It added: “Chairman Glen Suarez knows full well that all Impax Asset Management needed to do was say yes to paying the full tender costs and we would have participated – any claim otherwise is simply not true. For Saba, this decision was guided purely by our duty to hold management accountable to act in shareholders’ best interests by covering the costs of this exit.”
Winterflood, corporate broker to IEM, believed Saba’s demand was unprecedented but said the board might not have any choice if it believed it was in shareholders’ best interest to continue the 24-year-old investment trust.
Failure of the continuation tender offer means IEM will proceed with a second exit tender offer to enable non-Saba shareholders to sell out, which could reduce IEM to a rump under Saba’s control that could lose investment trust status with the loss of valuable tax breaks.
Winterflood analyst Shavar Halberstadt said “it appears as though the ball is in Impax’s court” calculating that with tender costs of 2% of net assets “this crisis is no more than £10m away from being solved”.
He added: “It is entirely understandable that Impax would not desire to create such a precedent, but there now seems to be a clear choice between losing approximately one year of management fees or losing the trust.”
Our view
James Carthew, head of investment company research at QuotedData, said: “We hate that Saba is blackmailing the trust. However, Winterflood’s argument is the right one but the quantum looks wrong. Stamp duty on the repurchased shares is unfortunately unavoidable, and for buying back all of Saba’s shares and say another 10% of the share capital we make that about £1.4m–£1.5m. The fees payable to the broker etc would have to be negotiated by the board but we cannot fathom why these should exceed £1.5m–£2.0m (bar this change to the expenses, this is pretty much a standard, cookie-cutter transaction). So that suggests IAM’s bill would be no more than £3.5m and its ongoing management fee would be about £5.1m. Looks like the ball is in its court.”
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