European Smaller Companies Trust will offer shareholders on the register at 6pm tomorrow the chance to participate in a 42.5% tender offer. Saba is committed to support the idea and submit all of its shares to the tender offer.

In exchange, Saba has also committed not to requisition another meeting, vote against directors or publicly propose that they be removed, and vote with the board’s recommendation at meetings. That agreement runs until after the trust’s AGM in 2028. It also cannot buy more shares in the company until after 30 September 2025. There is another paragraph in the agreement – see below.

In the tender offer, shareholders can choose to receive cash for their shares – under this option, the tender price will be determined by liquidating a cash exit pool created by hiving off a percentage of the portfolio equivalent to the percentage of shares committed to this option. It is currently expected that the assets in the cash exit pool will be realised not later than 25 June 2025. However, the realisation period will depend on the market environment.

Qualifying shareholders (professional investors) can opt instead to receive an in specie distribution – a slice of the whole portfolio equivalent to their percentage holding in the trust. However, even after the in specie exit shares have been created, holders of these shares will still have a chance to sell these shares for cash to Winterfloods (the trust’s broker). The price for that will be determined by the NAV of the pool created to satisfy this option. That cash should settle on 27 May 2025. Those wanting to keep the shares, should receive their slice of the portfolio on the same date. They will be liable for any stamp duty due.

[This appears to create a two tier system where professional investors can get their money faster than retail investors – but there is a cost to this of about 0.7% – see below.]

All the costs of the tender will be deducted from the two tender pools – ongoing shareholders won’t bear any of the costs. The fixed costs and expenses relating to the tender offer, which excludes portfolio realisation costs, assuming the tender offer is fully subscribed, are expected to be approximately £690,000 including VAT, where applicable. In addition, stamp duty on the repurchased ordinary shares is 0.5% and commission on the repurchased ordinary shares is 0.2%.

The deal needs approval by 75% of those voting at a meeting to be held on 7 May. If you want to vote, the votes must be in by 2pm on 2 May.

The last day to submit tender forms is 16 May but you should probably aim to get them in as soon as possible to avoid delays associated with your platform.

The results will be announced on 20 May.

The discount as at close of play last night was 9.4%.

PS: There is another paragraph on page 40 of the circular that I have to confess didn’t make a lot of sense to me. However, I now understand that this is designed to protect ESCT shareholders so that if Saba does a deal with another trust that leaves its investors better off than ESCT’s under this deal, ESCT investors will be compensated.

“Saba has also agreed to make a payment to the Company of a prescribed sum in circumstances in which, on or before 31 December 2025, a specified transaction, implemented by any other specified investment trust in which Saba Investment Vehicles have participated, has completed and pursuant to which any Saba Investment Vehicles are able to exit not less than 15 per cent. of the issued share capital of such specified investment trust (excluding shares held in treasury) at a discount of more than 1 per cent. to the per share net asset value of such specified investment trust (provided, however, that any deduction from the per share net asset value to take account of costs, stamp duty, transfer taxes or other taxes associated with the specified transaction shall in no event be considered to have resulted in a discount of more than 1 per cent.) (but, for the avoidance of doubt, any deduction for costs, stamp duty, transfer taxes or other taxes associated with the specified transaction shall count towards the discount of 1 per cent.). The “prescribed sum” in these circumstances being two per cent. of the amount equal to either (a) the Tender Price per In Specie Exit Share or (b) in the event that Saba is deemed to have elected for the Cash Exit Option in accordance with the terms of the Circular, the Tender Price per Cash Exit Share, in both cases multiplied by the number of Ordinary Shares that the Company repurchases from Saba pursuant to the Tender Offer.”

Saba investment vehicles are defined as “any funds, accounts and investment vehicles managed, advised or sub-advised by Saba or any of its affiliates, excluding the Saba RICS”. Saba RICS “means any investment companies from time to time registered under the U.S. Investment Company Act of 1940, as amended which are managed by Saba or any of its affiliates”

“specified transaction” and “specified investment trust” are not defined in the document as far as I can see.

You can read the full circular here

ESCT : European Smaller to shrink dramatically as it strikes deal with Saba