Shrinking European Opps plans another 25% tender

The Alexander Darwall-run fund is offering an additional 25% tender offer, just a year after the rapidly-shrinking trust offered shareholders a way out.

Alexander Darwall’s European Opportunities (EOT ) is planning an additional tender offer for a quarter of its shares after seeing its discount widen further last year.

The portfolio of European equities is asking shareholders to vote in favour of a tender for 25% of its shares at a 2% discount to the prevailing net asset value (NAV). If approved, the trust plans to repurchase the shares in the second quarter.

The offer follows a 25% tender offer in January 2024 that was implemented close to NAV and was fully subscribed. At the same time, the board also set out proposals for further performance-released tender offers of up to 25% in the event that the NAV total return fails to equal or exceed the MSCI Europe benchmark over a three-year period to 31 May 2026. It is already nine percentage points behind the benchmark.

In 2026, shareholders will also have the opportunity to vote on the continuation of the fund, heaping pressure on manager Darwall and Devon Equity Management.

Darwall has some work to do, given that the discount the shares trade at increased from 10.2% to 12.3% over the six months to the end of November, versus a 10.7% average discount for peers in the Association of Investment Companies Europe sector.

The NAV of the portfolio is currently valued at £609m but the market has placed a value of just £549m on the shares.

EOT is the worst performing trust in its Europe sector over the past year in both NAV and share price gains. Over 12 months the NAV is up 1.4% versus a sector average of 6.7%, while the shares have eked out a 3.4% rise against a 4.2% average.

Matthew Dobbs, chair of the trust and former Schroder AsiaPacific fund manager, said he was ‘mindful of the persistence of the double-digit discount and the recently disappointing performance of the company’s portfolio’.

He said the board was committed to reducing discount volatility and aims to keep the discount in single figures. The trust has bought back 2.9 million shares at a cost of £24.5m since the beginning of its financial year on 1 June 2024.

Stifel analyst Will Crighton said that after an extended period of poor performance ‘shareholders’ patience will be waning’ and predicted the tender would be ‘heavily oversubscribed’ given the 2024 offering had just under 60% of shares tendered.

‘The market cap has already halved over the past five years and is set to shrink again, and there will likely be another 25% tender next year too,’ he said.

‘If the fund significantly shrinks further, it could well mean the end of the road is approaching, such as if the next continuation vote at the 2026 annual general meeting fails, or the company becomes a takeover target.’

While shareholders may be happy to offload their shares, Darwall has been upping his stake of late, building it to just shy of 8%, making him the third-largest shareholder. The increase keeps Darwall’s stake above that of activist investor Saba Capital, which is the fifth-largest shareholder with a 4.4% stake.

Notably, Saba reduced its stake after the January 2024 tender but there is no detail on whether the additional tender offer comes amid any pressure from the New York-based hedge fund, which is run by Boaz Weinstein.