Edinburgh Worldwide proposes 100% tender to see off non-Saba shareholders
Edinburgh Worldwide (EWI) has proposed a tender offer for up to 100% of issued share capital, offering shareholders a cash exit after what it said were exhaustive attempts to reason with activist investor Saba Capital.
Shareholders who elect to tender will receive 85% of proceeds in cash at close to net asset value (NAV) funded from disposals of the £782m Baillie Gifford trust’s liquid assets.
The remaining 15% will be deferred pending clarity on the realised value of a sizeable stake in SpaceX, with the board expecting a ‘crystallisation event’ to be possible within the next year.
Elon Musk’s rocket company is rumoured to be planning an initial public offering (IPO) in June for $1.5tn. The latest tender in December valued it at $800bn, boosting its position in EWI’s portfolio to 16.6%.
The trust’s tender requires a 50% approval and the board intends to unanimously recommend shareholders vote in favour.
Given around 12.8% of EWI’s assets excluding SpaceX are unlisted companies that can’t be realised quickly, the initial cash return will be scaled back on a pro-rata basis if all shareholders elect to tender their shares. In that scenario, investors would retain a small tradable stake in the trust.
The board said it came to the decision after having ‘exhausted every reasonable and equitable solution’ with Saba, which owns roughly a third of EWI shares.
The New York hedge fund plans to make its third attempt at replacing the trust’s board with its own candidates later this year, despite the proposal being rejected twice by shareholders over the past 12 months.
Chair Jonathan Simpson-Dent has been open with his opinion that the hedge fund’s ultimate objective is to take control of trust, raising questions around shareholder rights with the Financial Conduct Authority. This prompted the regulator to bring forward its review of UK Listing Rules last week, which it hopes to complete by the end of the year.
However, today’s announcement is further evidence that the FCA needs to act faster in delivering more ‘immediate action’, according to Richard Stone, chief executive of the Association of investment Companies (AIC).
‘The current rules are not fit for purpose because they allow a minority shareholder to repeatedly attack an investment trust,’ he said. ‘Unless the FCA steps up this could happen again and again and we could see more UK-listed companies disappear.’
Today’s announcement revealed Saba has now confirmed these objectives, stating its desire for a new board and change of manager to the board.
Simpson-Dent said it was ‘frustrating’ that 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’.
‘Regrettably, we believe it is only a matter of time before Saba succeeds,’ he added.
Last month, Saba set out its own exit route for shareholders should its proposed directors be accepted in the spring, but analysts suggest the EWI proposal looks the better option.
Peel Hunt’s Anthony Leatham said continued SpaceX exposure is a ‘key differentiator’ to Saba’s offer, which ‘would force shareholders to either give up SpaceX or become trapped in a Saba-controlled vehicle’.
Winterflood’s Emma Bird was of the same view, saying the proposal is ‘well placed to deliver the best outcome for all shareholders, particularly as it provides to ability to capture further valuation upside from SpaceX, widely viewed as the fund’s ‘crown jewel’ asset (including by Saba)’.
‘Having said that, we think it is a shame this situation 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, its long-term investment horizon and the commitment to shareholder interests by its independent board,’ she added.
A circular with further details will be published in due course.
