Herald (HRI) has reached an agreement with Saba Capital to ensure the £1.4bn global technology trust’s survival. The activist hedge fund with a 30.7% stake has agreed to a three-year standstill in return for a 66% tender offer that will let investors take half their stake as assets and half in cash. In addition, the Herald investment team including lead fund manager Katie Potts are to join the Aberdeen Group.

After three months of talks following Saba’s rejection in February of Herald’s earlier tender offer proposal, the two sides have agreed terms for a 66% exit that will enable Saba and other shareholders to sell their holdings at their net asset value (NAV) minus 2% costs. Up to half of the tender offer can be taken in an in specie transfer of the company’s investments, reducing the need for potentially disruptive sales of illiquid stocks, with the rest in cash.

The statement says Saba is swapping its entire stake for assets which means other shareholders who decide to sell can take at least 51% in cash, possibly more depending on how many non-Saba investors seek an exit.

The eight-strong Herald Investment Management team led by Potts, who has managed the Herald trust since launch in 1994, will move to Aberdeen’s London office. A total of £1.6bn of assets, including the open-ended Herald Worldwide Technology Fund, will follow them to Aberdeen. After an 18-month period, the contract between HIM and Aberdeen will be terminable by either side at six months’ notice. Aberdeen will use the first six months of its management fee to buy shares in Herald, which jumped 2.2% in early trading having closed yesterday at a 9.6% discount to NAV.

Aberdeen Group (ABDN) chief executive Jason Windsor said: “The Herald team has a long track record of backing early-stage technology companies, and driving material long-term growth from those investments. As the fifth largest manager of closed-end funds globally, and as a leading small cap manager, we are delighted to welcome Katie Potts and her team to Aberdeen.”

Saba founder and chief investment officer Boaz Weinstein, who has agreed not to vote against the board or challenge the company in any way, including the short selling of its shares, for three years, chalked up the deal as a victory. “HRI shareholders will now have real choice: immediate liquidity close to NAV, or continued exposure to the same strategy they believe in under a stronger institutional platform. This is what shareholder engagement looks like when boards act in the interests of the people they serve, and it is what Saba will keep demanding across the UK investment trust sector.”

Although the tender offer could see Herald shrink by two thirds, chair Andrew Joy said the move to Aberdeen with the FTSE 250 group’s marketing resources represented a “platform for growth” for a listed fund he said had generated an impressive 3,437% underlying investment return since launch. It draws a line under a fraught 17-month period for Herald, which was one of seven trusts targeted in Saba’s initial campaign at the start of last year.

“I am delighted that agreement has been reached for Herald Investment Trust to continue with its successful investment mandate, and end the impasse between different groups of its shareholders. This will be welcomed by our long-term investors, who look forward to the chance of continuing to enjoy strong returns,” Joy said.

Richard Stone, chief executive of the Association of Investment Companies (AIC) which helped rouse investor resistance to Saba’s attempts to replace Herald’s board, said: “We’d like to congratulate the board of Herald and Aberdeen Investments on this creative solution.”

Our view

James Carthew, head of investment company research at QuotedData, said: “I’m delighted that a way has been found for Herald to continue. It is a coup for Aberdeen to secure the trust and the services of Katie and her team. I find it inconceivable that a 66% tender offer will be taken up in full, even if Saba exits its entire stake. This is a trust that has delivered a 44% NAV return over the past 12 months and 14.15% per year or 276% in total over the past 10 years. It also is a unique way of accessing an exciting part of the market. If anything, investors should be thinking about buying stock now that the trust’s future is secure, I know I am.”