Saba Capital calls for European Opportunities trust to increase size of tender offer

Yesterday (6 November), the trust proposed plans to undertake a tender offer for up to 25% of its issued shared capital if the continuation vote at the annual general meeting on 15 November is passed.

This is in addition to an earlier proposal to hold a tender offer for 25% of the trust’s shares if it underperforms its benchmark over the next three years. 

In a letter addressed to EOT chair Matthew Dobbs, Saba Capital partner and portfolio manager Paul Kazarian said the firm opposed both tender offer proposals, and urged shareholders to vote against continuation.

Activist investor Saba Capital opposes European Opportunities conditional tender offer

“In order to create a positive outcome, we request that the fund offer a 50% tender of the shares outstanding, to allow a significant portion of dissatisfied shareholders to exit,” he said. 

“In our view, a 50% tender will lead to a better price post tender than your proposal whilst keeping the fund’s size viable for investors who wish to remain.”

In the letter, Zakarian said that Saba Capital had been “fighting for the interests” of shareholders in closed-end funds and investment trusts. 

“We have negotiated dozens of shareholder-friendly corporate actions (i.e., tenders, restructurings, discount management plans) in funds like EOT, whose shareholders have suffered from sustained underperformance and prolonged discounts to net asset value,” he said. 

The portfolio manager said that when a fund proposes a modest tender offer instead of taking more “significant action”, it raises “significant concerns”.

“In EOT’s case, we believe that following completion of your proposed 25% tender, the share price would then fall and the discount to NAV would grow to at least -15% — a level common in UK investment trusts that do not have a continuation vote,” he said.

Saba Capital eyes $500m for activist UK investment trust fund

According to Kazarian, this could lead to all shareholders suffering a net loss in value, even the ones who participate in the tender.

“We strongly recommend that our fellow investors reject the continuation of the fund until the size of the tender is increased,” he added. 

Over the past 12 to 18 months, the firm has been taking positions in multiple UK investment trusts, including European Opportunities, Henderson Opportunities, Schroder UK Mid Cap and Baillie Gifford US Growth. 

Last month, Investment Week reported that Saba had been fundraising a targeted $500m from investors for the launch of a fund that aims to take activist positions in UK investment trusts holding listed equity. 

The vehicle will take positions in around 20 UK investment trusts, with the aim of narrowing their discount through activism, according to a person familiar with the matter. Investment Week understands Saba Capital is currently growing a $3bn exposure in the sector.