Activist investor Saba Capital opposes European Opportunities conditional tender offer

In a letter issued on Friday (20 October), partner and portfolio manager Paul Kazarian described the conditional tender offer announced earlier this month as “woefully insufficient”.

The EOT board has proposed holding a tender offer for 25% of the trust’s shares if it underperforms its benchmark over the next three years. However, Kazarian noted the trust has underperformed its benchmark by 40% over the last five years. 

“The idea that an investment advisor should only provide an option for shareholders to redeem 25% of their investment, if the fund underperforms for another three years, puts the interest of the fund’s manager ahead of shareholders,” he said.

European Opportunities proposes performance-related tender offer

Kazarian added there is “no reason” to keep investors in the trust “trapped” for the benefit of the manager, Devon Equity Management.

“While I appreciate your confidence in the manager’s investment thesis, shareholders who share the same confidence should remain, and shareholders who do not should have an opportunity to exit at NAV,” he said. 

“This is a fund of liquid holdings imminently capable of providing liquidity to its shareholders.”

The proposed conditional tender offer is set to be voted on at the trust’s annual general meeting on 15 November, as well as the future of the EOT in a continuation vote.  

Unless a full liquidity option at NAV is provided to shareholders, Saba Capital has affirmed its position against continuation, and said it would “encourage other shareholders to vote against continuation”. 

In a research note, Numis analysts Ewan Lovett-Turner and Ash Nandi noted Saba Capital has been building stakes in numerous investment companies over the last 12-18 months. 

European Opportunities trust lowers management fees as continuation vote looms

“Saba have been vocal in the US, publicly taking on management groups, such as BlackRock, after taking stakes in US closed-end funds. As discounts have widened in UK Investment Companies, Saba has announced stakes in 10 closed-end funds since May 2022,” they said. 

“However, the letter to the board of European Opportunities is the first we have heard from them publicly in the UK.”

Lovett-Turner and Nandi said this confirms they have “different ambitions to some of the traditional value investors in UK investment companies and are seeking full exits at NAV”. 

“In contrast, many of the value-orientated investors that have been investors in the sector for some time are more focused on benefiting from narrowing of the discount and partial exits at close to NAV, as their focus on closed-end funds ultimately means that they want vehicles to continue,” the analysts wrote.