Herald refers Saba complaints to City regulator

Herald reveals it referred complaints about the activist to the regulator over its attempted takeover.

Herald (HRI) has escalated its long-running battle with Saba Capital to the Financial Conduct Authority (FCA), accusing the New York activist of attempting a ‘creeping’ takeover of the trust through a war of attrition.

In annual results today, Andrew Joy, chair of the £1.2bn technology trust, said the board has referred the hedge fund’s conduct to the regulator following its decision to block a 100% tender offer which had been hoped would see the back of the activist after more than two years.

Complaints focused on Saba’s strategy of replacing incumbent boards with its own nominees, requiring only a simple majority vote of over 50% – as with recent action at Edinburgh Worldwide (EWI) and a failed attempt to oust Herald’s own board at the start of 2025. 

Joy argued the final intention of these manoeuvres is to appoint Saba as investment manager. Consequently, Herald’s board has urged the FCA to rule that any director nominated by a substantial shareholder should be legally barred from voting on the appointment of that shareholder as investment manager, citing ‘relevant related party transaction’ rules.

It maintains that Saba, which holds a 31% stake in the trust today, is attempting to gain effective control by a ‘process of attrition,’ oppressing the interests of the numerous small shareholders who collectively make up a majority of its register.

The board has initiated discussions with Saba to settle on a ‘mutually acceptable outcome,’ but said a ‘backstop tender’ requiring only a 50% shareholder approval remains on the cards. 

This last resort would give investors, many of whom would have been part of the unanimous vote against Saba’s nominees in January 2025, an opportunity to exit at close to net asset value (NAV) before control potentially shifts. Joy said this would likely ‘spell the end of the company with its current mandate and management.’

Herald delivered a NAV total return of 8.5% over the year to 31 December, while its share price fell 1%. The results pointed to Saba’s ‘unwanted attentions’ as a material drag, as AAA-rated Citywire manager Katie Potts was ‘inhibited’ from making any new investments and in order to prepare for potential tenders, the trust was forced to hold a cash level of 15.8%—materially higher than historical norms.

Shares in the trust are up 5.6% since the start of the year, and trade on a 7.8% discount.