Saba Capital has offered Herald (HRI ) shareholders a full cash exit at 99% of net asset value (NAV) in a bid to win votes in the upcoming showdown between the trust and the activist investor.

The technology trust run by veteran manager Katie Potts is one of seven requisitioned by Saba in a bid to oust their boards, which it says have overseen extended periods of underperformance and wide discounts.

Herald and Saba have engaged in tit-for-tat mud-slinging, with each accusing the other of providing misleading information to shareholders and acting in a self-serving manner. However, the New York firm headed by Boaz Weinstein has now upped the ante, providing a concrete offer to shareholders if they vote in Saba’s favour at a general meeting on 22 January.

Saba announced today that investors would be offered a 100% cash exit at 99% of the current NAV, which stood at £24.26 per share at the end of November, excluding income, giving the trust a total NAV of £1.28bn.

Shares in Herald fell 0.2% to £24.85 following the announcement, in the context of wider pressure on the FTSE 250.

Saba confirmed the cash exit would be overseen by what it called a ‘fully independent board’ but would not happen for at least a year to ensure the portfolio value was ‘maximised’.

The announcement from Saba comes in response to shareholder concerns about its strategy. The firm said that the offer ‘provides certainty regarding the plan to deliver long-overdue liquidity to all shareholders, alongside the opportunity for greater long-term returns under a new investment strategy and manager’.

It claims Herald investors have ‘suffered’ a 14.7% three-year average discount to NAV under the current management team and board.

Stifel analyst Will Crighton said that shareholders who ‘are in favour of the proposals and do just want a quick cash out’ will want their money sooner than the timeframe Saba is offering.

‘Predictably, Saba’s initial proposals have generally been poorly received by the sector, and we think the arguments set out by the boards of each trust against such proposals are strong,’ Crighton said. 

‘However, clarifying…a full cash exit at close to NAV…may somewhat strengthen Saba’s case for Herald.’

Herald is the first trust that Saba has published a strategic plan for, and Crighton said it would be ‘interesting to see if there are similar proposals for the other six trusts under siege’: namely, Baillie Gifford US Growth (USA ), Keystone Positive Change (KPC ), Edinburgh Worldwide (EWI ), CQS Natural Resources Growth & Income (CYN ), European Smaller Companies (ESCT ), and Henderson Opportunities (HOT ). 

‘It could be the case that Saba thinks Herald might be one of the trickier ones to win, or is simply focusing on Herald given it has the first general meeting,’ Crighton added. 

Deutsche Numis analyst Ewan Lovett-Turner said the offer of a cash exit was ‘broadly similar’ to Saba’s original plan. In his view, Herald investors should be more concerned with the proposed board changes that ‘would leave a small board of two people, including an employee of Saba, in charge of the strategic direction and with Saba’s significant stake giving it meaningful influence on any votes’.

‘To us, this appears to be effectively taking control,’ Lovett-Turner said.

He expressed ‘caution’ over the gap between what the letter of corporate governance codes considers independent and ‘the spirit of the codes’ expected by investors. ‘For example, the fact that a director is nominated by a shareholder does not necessarily make them non-independent,’ he said.

Lovett-Turner added that the Herald board had ‘left itself somewhat exposed’ by failing to make any proposals around liquidity or discount management.

‘Ultimately, we believe there may need to be some change at Herald, but do not believe the Saba proposals are the right way to go about it,’ he said. ‘Whatever the result of the vote this is not likely to be the end of the story.’

Saba has said that, if elected, its nominees will be ‘legally compliant at all times’ and will ‘ensure compliance with the highest standards of governance’.