The Baillie Gifford-managed £860 million Edinburgh Worldwide Investment Trust plc (EWIT) on Tuesday announced its intention to put forward a proposal to implement a tender offer for up to 100% of EWIT’s issued share capital.
The investment trust company has been facing a third attempt by New York hedge fund Saba Capital Management to oust the Edinburgh Worldwide board and elect three new directors nominated by Saba.
EWIT said the offer would provide eligible shareholders with the opportunity to receive a significant initial cash exit and also retain access to the potential future value from EWIT’s largest shareholding, SpaceX.
“This is a key differentiator to Saba’s recent proposal which would force shareholders to either give up SpaceX or become trapped in a Saba-controlled vehicle,” said EWIT.
“The board has exhausted every reasonable and equitable solution with Saba Capital Management, L.P. (Saba) and now seeks to ensure that those shareholders who have overwhelmingly rejected Saba’s proposals twice, have a clean, deliverable and fair exit option to avoid ending up in a Saba controlled vehicle.”
EWIT chair Jonathan Simpson-Dent said: “We have reached the end of the road with Saba’s obsession to break the status quo 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 NAV while preserving exposure to SpaceX until a future liquidity event, after which shareholders would receive a further cash payment.
“Shareholders have twice delivered a clear message by rejecting Saba’s attempts to take control of the company. Yet within weeks Saba launched a third campaign, proposing board nominees already rejected and a proposal that would effectively force shareholders to choose between remaining in a Saba-controlled vehicle or giving up any future upside from SpaceX.
“These repeated actions have created prolonged uncertainty, imposed significant costs on the company and distracted from executing a strategy that is delivering value. We cannot allow the company to remain caught in a cycle of disruption driven by a minority shareholder whose objectives and commercial self-interest are fundamentally misaligned with those of the wider shareholder base.
“Frustratingly, the current regulatory framework permits a determined minority shareholder to effectively gain board and managerial control through repeated actions which explicitly oppose the desires of other shareholders.
“While we have galvanised the FCA into action, addressing this systemic problem will take longer than Saba’s repeat smash and grab cycle. Regrettably, we believe it is only a matter of time before Saba succeeds.
“This Tender Offer is not the outcome the board would have chosen under different circumstances. But after multiple attempts to engage constructively with Saba over many months and given the continuing instability and costs created by its actions, we believe it would be irresponsible to allow this impasse to continue indefinitely.
“Shareholders have spoken clearly, twice. We now ask them to do so once more: to vote in favour of the Tender Offer when the circular is published and bring this prolonged period of disruption to a definitive close. The Directors intend to tender all of the shares they hold.”
EWIT described its Tender Offer thus: “The company will provide an opportunity for eligible shareholders to tender up to 100% of their shares.
“Shareholders who tender will receive approximately 85% cash at close to NAV (net asset value) funded from the disposal of the company’s liquid assets and approximately 15% deferred cash based on the realised value of SpaceX, once crystalised. The board expects a crystalisation event will be possible within the next 12 months.
“The board commits to an orderly realisation of assets and a return of capital to those shareholders. The proceeds from all disposals would be returned at NAV less costs.”
Association of Investment Companies CEO Richard Stone said: “The FCA needs to take immediate action on the Listing Rules to protect the long-term interests of shareholders. Shareholders have repeatedly rejected Saba’s attempts to take control of Edinburgh Worldwide.
“The current rules are not fit for purpose because they allow a minority shareholder to repeatedly attack an investment trust. Unless the FCA steps up this could happen again and again and we could see more UK-listed companies disappear.
“Saba’s attack on Edinburgh Worldwide 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. An activist investor should not be allowed to ride roughshod over shareholders and destroy much valued investment trusts.”