Saba exits European Smaller Companies after bumper tender

European Smaller Companies will shrink significantly after more than 42% of its shares were tendered, a move that will see activist Saba Capital exit the shareholder register.

European Smaller Companies (ESCT ) will come close to halving in size after shareholders took advantage of its bumper tender offer, including activist Saba Capital.

The board confirmed that 166m shares, representing 42.2% of the share capital, had been tendered. This was out of a possible 42.5% of the shares. 

Of those tendered, more than 115m chose the ‘in specie consideration option’, which allows professional investors to receive a proportion of the fund’s underlying portfolio rather than cash. Investors with 50m of shares opted for a cash exit.

Professional investors who selected an in specie exit will receive their share of assets on 27 May, while those wanting a cash exit will receive cash in late June or early July, after the tender exit price is announced on 27 June.

Based on the current net asset value (NAV) of £830m, the tender will leave the portfolio with a not insignificant £480m of assets but with a more stable share register as New York-based Saba is understood to have exited its position.

Saba held the largest position in the fund, with an estimated 29% stake, which is made up of direct share holdings and derivative swaps, and equivalent to 115m shares, the same amount that has been tendered in specie.

Stifel upgraded its recommendation to ‘positive’ following the tender, which ‘suggested a full exit for Saba’.

‘On this assumption, only 18% of non-Saba held shares were tendered and so all things considered, this is a good result for the fund, and it can at least now move past this sage,’ said Stifel analyst Will Crighton.

Janus Henderson-run ESCT is one of the first boards targeted by activist investor Boaz Weinstein to agree an exit for Saba. It was one of seven trusts that were requisitioned by the group at the end of last year alongside Baillie Gifford US Growth (USA ), Herald (HRI ), Keystone Positive Change (KPC ), Henderson Opportunities (HOT ), CQS Natural Resources Growth & Income (CYN ), and Edinburgh Worldwide (EWI ).

While Saba lost all seven attempts to oust the trusts’ boards and insert itself as manager, ESCT made a subsequent deal with the group. Saba agreed to make no further interventions before the 2028 AGM, including the trust’s November continuation vote, in exchange for the large tender.

Crighton said: ‘It will move on as a smaller fund, with a market cap of £770m to fall to around £445m. However, it will still be the second largest of the European small-cap trusts, with only JPMorgan European Discovery (JEDT ) larger at £535m.’

He added that ESCT has a strong track record and is one of the top performing Europe-focused trusts in recent years, with a 17% NAV return year-to-date versus 14% by its MSCI Europe ex UK Small Cap benchmark. 

‘Given this shareholder overhang is now cleared, we upgrade our recommendation to “positive” from “neutral”,’ he added.

Over the past three years, ESCT’s shares are up 46.2% versus 33% by the average trust in the AIC’s European Smaller Companies sector. At the end of Monday it was trading on a 7% discount to NAV.