Saba blocks Herald tender and steps closer to control

The £1.2bn trust is having ‘ongoing discussions’ with its largest shareholder but may need to resort to its back-up plan.

Herald (HRI) has cancelled its 100% tender offer after Saba Capital used its 30.7% stake in the trust to reject the proposal.

The tender, which was designed to remove the activist investor from the register, could only go ahead with a 75% approval at a vote on Thursday that has now been cancelled. Without the go-ahead from its largest investor, the resolution would not pass.

The £1.2bn small-cap technology trust today said it was having ‘ongoing discussions’ with Saba in the hopes of reaching a ‘mutually agreeable outcome’.

Given Saba’s objection to the tender, however, Herald acknowledged that it may need to resort to its back-up plan.

The ‘backstop tender offer’ will only need a 50% approval from shareholders, meaning the outcome will not be determined by Saba. It would result in a 100% cash exit, but in doing so, essentially hand control of Herald over to Saba.

The tender will be paid for by selling the trust’s ‘most liquid and readily realisable holdings’, meaning Saba would be left with the most illiquid holdings.

Herald said removing Saba under option one was the ‘strongly preferred course of action’ but said the backstop will allow investors to ‘at least receive cash rather than automatically remaining in a vehicle which is likely to become effectively controlled by Saba, an outcome shareholders have already voted against twice in the last year’.

The US hedge fund first attempted to eject and replace the trust’s board in January last year, which only 0.15% of non-Saba votes backed, followed by a bid against the company’s continuation the following March.

All of Herald’s directors have agreed to cash in their shares if the backup tender comes to pass.

Matthew Read, senior analyst at QuotedData, said: ‘This is a frustrating and confusing development for Herald shareholders, particularly those who like Katie Potts’ strategy and have held the trust for a long time and still don’t know whether they are going to be forced to cash out to avoid being locked into a Saba controlled fund.’