Ian Cowie: takeover row stresses trusts’ access to innovative firms

A dramatic act of self-sacrifice looks set to secure ordinary shareholders’ ability to participate alongside billionaires in a blockbuster $50 billion (£37 billion) initial public offering (IPO) expected this summer.  

That is the extraordinary sum which Space Exploration Technologies or SpaceX, Elon Musk’s extraterrestrial conglomerate, aims to raise through its imminent stock market flotation. 

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Coming down from the clouds of Musk’s interplanetary ambitions, SpaceX is already the biggest asset held by Edinburgh Worldwide Ord (LSE:EWI). 

Now, in a row between earthlings, EWI aims to block a takeover bid by the American activist investor, Saba Capital, by offering shareholders the chance to get back into cash while retaining exposure to SpaceX. 

EWI shareholders have already voted twice to reject Saba’s proposals but the New York-based hedge fund has renewed its attempt to gain control.  

So, a somewhat exasperated-sounding Jonathan Simpson-Dent, chair of the investment trust, claims: “We have reached the end of the road with Saba’s obsession and its continuing disregard for the expressed wishes of other shareholders. 

“This regrettable but necessary step is intended to protect shareholders from being trapped by Saba, offering a significant cash exit close to net asset value (NAV) while preserving exposure to SpaceX until a future liquidity event, after which shareholders would receive a further cash payment.” 

I did ask Saba to comment but no answer came before this piece was due to be published.

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Additional information about price and timing is expected in the formal tender offer for up to 100% of the fund’s issued share capital. The board argues that this will retain the potential future upside of EWI’s largest holding, SpaceX, which represents nearly 17% of total assets. 

Simpson-Dent added: “The board intends to unanimously recommend that shareholders vote in favour of the tender offer to draw a definitive line under this prolonged, destabilising and costly period of distraction. The board will be tendering the shares which they hold.” 

Skin in the Game research by Investec shows that four out of EWI’s six directors own shares in the fund that are worth more than the annual fees it pays them. The fund’s managers, Baillie Gifford, own EWI shares worth £2.2 million. 

Emma Bird, an investment trust analyst at Winterflood, commented: “EWI is falling on its sword to attempt to ensure shareholders are not unwillingly trapped in a Saba-controlled vehicle. 

“We are inclined to agree with the board’s assumption that Saba would eventually succeed in its attempt to replace the incumbent directors, given the likelihood of investor fatigue from being repeatedly asked to vote on the same resolutions. 

“Having said that, we think it is a shame it has ended this way – EWI was a clear example of an investment trust using the benefits of the structure to its advantage, via its allocation to private companies and its long-term investment horizon.” 

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EWI is the top performer in the Association of Investment Companies (AIC) Global Smaller Companies sector over the last year - having bounced back from being worst in its sector over the last five years and ranking second over the last decade. Its total returns were 43.5% over one year, a 36% loss over five and a 170% gain over a decade. 

Alan Brierley, head of investment trust research at Investec, said: “Sadly, the board has been left with no credible alternative and we unequivocally support its proposals. 

“Shareholders do not want to take a leap of faith and become trapped in a Saba-controlled vehicle.” 

Richard Stone, chief executive of the AIC, claimed: “The Financial Conduct Authority (FCA) needs to take immediate action on the listing rules to protect the long-term interests of shareholders. 

“Saba’s attack on EWI 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.” 

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He is absolutely right. As discussed here several times in recent years, SpaceX is arguably the most exciting business on this planet and investment trusts are the only way that ordinary investors can gain any exposure at present. 

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Edinburgh Worldwide (EWI) as part of a globally diversified portfolio of investment trusts and other shares. 

EWI managers, Baillie Gifford, confirmed this is its fund with the highest percentage of NAV invested in SpaceX, calculated at 16.9% at the end of January. On the same basis, Scottish Mortgage Ord (LSE:SMT) holds 15.2% of its assets in SpaceX; Schiehallion Fund Ord (LSE:MNTN) holds 13.6%;  Baillie Gifford US Growth Ord (LSE:USA) holds 11.8%; and Monks Ord (LSE:MNKS) has 1.1% exposure.