European Smaller Companies enters 'constructive' Saba talks

The European Smaller Companies Trust (ESCT) is in ‘constructive discussions’ with Saba Capital, the US activist investor that has dug its claws into the UK investment trust sector.

The £769m Janus Henderson-run trust has been given a 30-day reprieve while the ‘good-faith negotiations’ are ongoing.

It is among six trusts that have so far fended off proposals by Saba to oust their boards and install itself as fund manager, with votes being counted at a seventh trust later today.

New York-based Saba has since requisitioned four trusts to try and force them to provide liquidity for shareholders by transitioning into open-ended funds.

The board of European Smaller Companies is the last of the quartet to respond to the requisition and the only one to have indicated it is talking to Saba.

‘Since the receipt of the second requisition notice, the board has engaged in constructive discussions with Saba, who has agreed to withdraw the requisition for a period of 30 days to allow both parties to enter into good-faith negotiations aimed at achieving an outcome that benefits all shareholders,’ the company said in a stock market filing.

The board of CQS Natural Resources Growth & Income (CYN) was the first to respond, blasting the attack as being ‘without merit’ and a ‘wasteful’ use of shareholder resources.

The boards of two other trusts urged shareholders to sit tight amid the latest Saba strike.

Schroder UK Mid Cap (SCP) said it is ‘considering with its advisers the validity of the proposal’, while Middlefield Canadian Income (MCT) simply acknowledged the requisition and said it is ‘committed to acting in the best interests of all shareholders’.

Deutsche Numis analyst Gavin Trodd said it would be interesting to see if any of these trusts negotiate a similar delay to the requisitions with Saba.

The 30-day negotiation period agreed with European Smaller Companies ‘gives the board some time to work on a potential solution’, he said.

Given its size, the trust has ‘some more flexibility’ and ‘scope to return some capital whilst retaining the scale to appeal to a wide range of investors’.

‘We would expect that meaningful proposals would be put to a shareholder vote, given Saba has a circa 29% stake,’ he said. ‘In addition, we note that Janus Henderson, the manager, also took a 5.2% stake in ESCT in late January.’