Saba Capital has moved quickly to urge the new board of Impax Environmental Markets (IEM) to appoint a new fund manager in place of Impax Asset Management.
The US activist hedge fund, which holds over 31% of the shares following the recent exit tender offer the former board offered shareholders as an escape route from a Saba controlled fund, called for its nominees to “deliver a reset”.
Addressing what he called the “new, independent board”, Saba founder and chief investment officer Boaz Weinstein said: “We urge the new directors to act immediately upon appointment to serve notice to terminate Impax’s management contract and begin the search for a new manager. Shareholders finally have a board that will put their interests first – now, they need a manager committed to doing the same.”
Weinstein said IEM’s track record made change inevitable with a five-year shareholder return of just 6.2% lagging its benchmark’s 82.6% gain by 76.4%.
The move is expected to lead to Saba’s eventual appointment as fund manager and IEM’s switch to investing in other undervalued investment companies. A merger with Edinburgh Worldwide (EWI), where Saba nominees were also recently voted in, could also be possible, giving the New York firm a big vehicle to pursue other investment trust targets.
As predicted by the old board, chair Glen Suarez and his four co-directors were removed by over 71% votes at the general meeting requisitioned by Saba yesterday. On a 44.5% turnout, Saba nominees Caroline Bault, Steven Grey, Jason Chen and Aaron Morris were elected with a similar level of support.
The annual general meeting, which occurred at the same time, saw Saba block a number of standard resolutions including the renewal of the board’s ability to buy back shares to manage the share price discount.
Weinstein challenged former chair Suarez’s expression of regret that his board had been unable to stop “a single minority shareholder” taking control.
“We are not. Saba represents millions of ordinary savers who hold IEM through their investments with us. And we bought our shares from the very IEM shareholders the incumbents claim to champion – shareholders who felt compelled to sell after years of disastrous performance.”
Richard Stone, chief executive of the Association of Investment Companies (AIC) of which IEM is a member, said: “It’s disappointing that directors nominated by Saba, a single minority shareholder, have been appointed to the board, effectively taking control of this company. This looks like a step towards Saba gaining the management contract and potentially radically changing the company’s investment mandate.
“Just a year ago, the overwhelming majority of shareholders voted for the continuation of this company and its investment strategy. The current board have worked tirelessly to try and resolve this situation and gave all shareholders the option of exiting the company, an option which the vast majority took up.”
Stone said the FCA, the City regulator, was expected to shortly announce a consultation on changes to the listing rules. “We are pressing for changes to address activism which benefits one shareholder by capturing the management contract. It’s also vital that the government puts in place legislation to make sure all shareholders get the information and voting rights they are entitled to.”
Shares in IEM slipped 2.4%, or 11p, to 456p this morning. At last night’s close they stood at a 9.7% discount to net asset value.
Our view
Matthew Read, senior analyst at QuotedData, said: “Now that the campaign to gain control of Impax Environmental Markets is over, Saba’s chosen board members need to explain clearly what they intend to do with the company, how they will assess the options available, and what process they will follow to ensure that all remaining shareholders are treated fairly. IEM still has a specialist environmental mandate with shareholders who invested on that basis. The fact that many shareholders chose to exit does not remove the responsibilities owed to those who stayed.
“The right next step is a proper, independent review of the company’s future. It should be conducted transparently, with advisers who are clearly acting for the company and all shareholders, rather than simply validating a plan already favoured by Saba. This next step will show whether Saba’s chosen directors are really as independent as it has claimed they will be. In the meantime, we wonder whether Saba’s new board will regret not having share issuance and buyback powers. The discount could quite easily drift out from here and the board is missing key tools to help control it.”
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