Update: Impax Environmental Markets (IEM) has conceded that Saba Capital will have “effective control” of the investment trust following the completion of the exit tender offer from which the activist hedge fund will emerge with a 29.9% stake.
The holding, which will increase from the current 21%, puts Saba in a powerful position to replace IEM’s board having announced earlier today that it will requisition a general meeting of shareholders to vote in new directors.
The move appears to have wrongfooted IEM which yesterday stated its belief that Saba had tendered some or all of its stake in the listed fund as results showed nearly 78% of the shares had been put up for sale.
This afternoon the board said Saba had declined to confirm its tender elections and the “complexity and fluidity” of its position made it difficult to estimate the post-tender shareholding.
IEM believes that Saba’s maintained holding and attack of the board today vindicates its decision to give all shareholders an opportunity to exit before the US firm could emerge as a controlling shareholder with significant influence over strategy, objectives, and mandate.
“Saba’s announcement today reinforces the importance and timeliness of the board’s actions to protect the long-term interests of all shareholders. The board acknowledges the likelihood of Saba having effective control of the company following the completion of the exit tender offer, and as such, will constructively engage with Saba,” it said.
Earlier in an open letter to the IEM board, the activist hedge fund did not say if it sold any shares in the tender offer last week. A spokesperson for Saba also declined to comment.
In the letter, Saba partner Paul Kazarian wrote of his profound disappointment with the company’s performance and “the board’s inability to implement necessary strategic changes”.
He said IEM’s five-year shareholder loss of 3.3% had “massively lagged” by more than 75% the MSCI All Country World index total return of 72.4%. Over three years, shareholders’ 7.5% return had fallen more than 51% behind the 58.8% gain in the benchmark.
These have been periods when rising interest rates and inflation and a backlash in the US against clean energy and environmental concerns have created a difficult environment for the mid-cap, growth-style fund.
“Against this backdrop, the scale of the shares tendered (77.8%) in the recent exit tender offer makes clear there is little demand for this company to continue in its current state. In our view, any board would ordinarily step aside following this result. In light of this, we respectfully request that you resign.”
He said Saba would send formal requisition documents “imminently” with the aim of appointing a new board of “qualified, independent directors who are committed to delivering long-term value for all shareholders”. If successful, it is likely the new board would appoint Saba as the new fund manager in place of Impax Asset Management.
IEM chair Glen Suarez has previously said the board were compelled to offer the exit tender to allow shareholders a route out of the fund before Saba took steps to take control, as it has now done.
This puts IEM in the same situation as Edinburgh Worldwide (EWI) which is resisting a third attempt by Saba to replace its board on 30 April.
IEM shares rose 1% to 439.5p having closed on a 9.6% discount to net asset value yesterday.
Our view
James Carthew, head of investment company research at QuotedData, said: “Honestly, we are as confused as everyone else about the new Saba announcement. Yesterday, the board told us ‘it appears from an analysis of the elections that Saba has elected to tender the majority, if not all, of its position’. Today, Saba says it has a 29.9% stake – more than it had before the tender – but, it appears to be saying so by press release rather than a notification to the market as it would be required to do. The whole point of the exit tender was to allow shareholders out who didn’t want to be stuck in a Saba-controlled vehicle. As Saba says, the ‘the scale of the shares tendered” does indeed make it “clear there is little demand for this company to continue in its current state” because the “current state” that Saba is referring to is one where there was a threat of it being in charge – that is what investors were fleeing from. If it is true that it owns 29.9% of the rump and is determined to seize control, then it will probably do so. Anyone that did not get around to ticking the exit box is unlikely to turn out to vote to oppose Saba’s plans. Maybe it is time to move onto the next phase of this saga. One where a new set of supposedly independent directors are forced to justify their actions and face potential legal repercussions if they don’t act in all shareholders’ best interests.”
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