Saba blocks Herald trust’s exit plan

Saba Capital has blocked the 100% tender offer planned by Herald Ord (LSE:HRI), raising questions about the US activist’s intentions with the trust.

Herald’s board said it had decided not to go ahead with the tender, which would have needed shareholder approval as a special resolution, after Saba and associates voted against it.

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Special resolutions require a 75% majority to pass, meaning Saba’s stake of more than 25% was enough to put an end to the idea.

Herald noted that, excluding Saba, “the vast majority of shareholders who submitted proxy voting instructions in respect of the general meeting, representing more than 50% of the total proxy votes cast, voted in favour of the tender offer”.

What does Saba want?

Saba has exited many other trusts, including some of the original seven it targeted, via tender offers at close to net asset value (NAV), and its decision to block Herald’s tender raises questions about its plans.

Saba did recently block plans for Edinburgh Worldwide Ord (LSE:EWI) and Baillie Gifford US Growth Ord (LSE:USA) to merge, even with said plans involving an exit opportunity, and has tried to topple the boards at both trusts a second time round.

Saba had not commented on its intentions at the time of writing, but it’s possible it could want Herald’s assets to roll into a newly launched exchange-traded fund (ETF) which will invest in discounted UK trusts.

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Still a way out for Herald investors

Herald shareholders who wish to get out should still have that opportunity, with the trust’s board saying it was in ongoing discussions with Saba about different plans, whereby “a new tender offer in which eligible shareholders would be able to tender up to 100% of their holding will be launched in due course”.

If those discussions don’t prove fruitful, the board plans to launch a “backstop tender offer”. Eligible shareholders would have the chance to exit at close to NAV “and at a time before Saba might gain control of the board or the management of the company”.

This backstop tender offer would be subject to an ordinary resolution, meaning it only needs a 50% majority in a shareholder vote.

With its focus on specialist global small-cap shares some of Herald’s portfolio can be fairly illiquid, and the board warned that a backstop tender offer could exacerbate this issue.

“As the board expects that there would be very significant elections for the backstop tender offer if it were to proceed, the board currently anticipates that the assets allocated to the tender pool for the backstop tender offer would comprise the company’s most liquid and readily realisable holdings, with the company’s most illiquid holdings remaining with those shareholders who do not choose to exit their investment,” it said.

Herald is not the only Saba target to have set out plans for a 100% tender offer, with Impax Environmental Markets Ord (LSE:IEM)having followed suit.

We have listed recent data, provided by Winterflood, below on the trusts where Saba has declared a position to the market. But note that these positions can change quickly.

Source: Winterflood.