Activist investor Saba blocks Baillie Gifford trust merger

Saba, led by US hedge fund manager Boaz Weinstein, previously saw attempts to oust the boards of EWIT and the Baillie Gifford US Growth Trust and replace them with its own nominees fail to in February. The trusts were among seven targeted by Saba.

Now Saba, which holds a 29% stake in the Baillie Gifford US Growth Trust and has a 30% shareholding in EWIT, has signalled it will block the proposed merger of the two Ballie Gifford-run trusts.

Tom Burnet, chair of Baillie Gifford US Growth Trust plc, said: “We are highly disappointed that Saba has chosen once again to impede other shareholders by blocking the board from credibly presenting a potential merger opportunity that would result in a materially improved position for shareholders of both companies. This potential merger opportunity includes the offer of substantial liquidity for those shareholders who wish it.

“I and my fellow directors have always been very clear: we want to protect and create value for all our shareholders. That is our priority. We want to be able to put proposals for a way forward which are fair and equitable to all our shareholders. The board remains determined in its commitment to act in the interests of shareholders as a whole.”

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The board of EWIT was also critical of Saba’s stance. It said Saba’s rejection of the proposed merger indicates that its “ultimate objective is to gain control of the company without offering a control premium, thereby trapping the remaining 70% of shareholders in a company run for the exclusive benefit of its largest investor”.

However, Saba hit back at moves by the investment trusts to pursue the merger, and declared in a statement: “By pushing for a merger that benefits Baillie Gifford rather than shareholders, EWI’s board has confirmed where its loyalties truly lie. Shareholders deserve a board that puts them first—not another cosy deal that entrenches an unaccountable manager.”

The latest developments signal that Saba has no intention of dropping its campaign for significant change at the trusts. In a letter to the board of EWIT last week, Mr Weinstein declared that Saba has been “profoundly disappointed” by the trust’s share-price performance.

Mr Weinstein stated in the letter: “As you know, we have been profoundly disappointed with the share-price performance of the company for some time, which led us to requisition a general meeting nearly a year ago. At that time, you vigorously rejected our legitimate concerns and encouraged shareholders to dismiss them.”

Mr Weinstein added: “We remain profoundly frustrated by the board’s prolonged inertia, especially given the decisive actions taken by the boards of several other UK investment trusts to increase share prices and narrow persistent discounts to NAV (net asset value).

“We do not have faith in the current board’s ability to implement the necessary strategic changes. As the company’s largest shareholder, we feel a duty to our fellow shareholders to drive this essential change.”

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Responding to the letter, the chair of the EWIT, Jonathan Simpson-Dent said he was “disappointed” by Saba’s open letter.

He said: “Throughout the last year we have sought to engage with Saba to understand their objectives and to enter into a constructive dialogue regarding options for an equitable and holistic solution, including a return of capital.

“Saba’s open letter does not represent the significant progress EWIT has made since this board reset the company on a path for growth a year ago. Since then, NAV total return has been +17.5% to date, well ahead of the S&P Global Small Cap Index (+4.8%), the company’s benchmark index.”

In a statement to the stock market yesterday, the board of Baillie Gifford US Growth Trust said it has been engaged in talks over a “transformational merger opportunity” with EWIT. It said the deal would “result in both a continuation and refinement of the current investment strategy as well as a material cash exit opportunity for all shareholders”.

Under the proposed merger, the combined trust would continue to invest predominantly in listed and private US companies “across the market capitalisation spectrum, reflecting the complementarity of both companies’ investment strategies”, and continue to be managed by Baillie Gifford. The statement said the merged trust would benefit from greater economies of scale that are expected to result from enlarged cost efficiencies and greater liquidity.

It also noted that both companies are offering a cash exit for up to 40% of issued share capital at a narrow discount to NAV.

The combined trust would move to establish a “robust and efficient blended board with six directors on completion of the merger”.

The Baillie Gifford US Growth Trust noted that Saba is able to block the requisite shareholder approvals to get the deal done. But despite the lack of support from Saba, its board said it would like to consult with shareholders “more broadly on their views”.

The latest monthly factsheet for the Baillie Gifford US Growth Trust, which is focused on investing in equities of companies incorporated, based and operating largely in America, shows that it had total assets of £891.66 million on October 31. Its NAV per share was 308.47p, with a discount of share price to NAV of 10.5%. Its biggest holding is in Elon Musk’s Space Exploration Technologies (SpaceX), accounting for 5.9% of total assets.

The most up-to-date factsheet for EWIT, which offers shareholders a portfolio of publicly traded and private businesses “operating at frontiers of technological innovation and transformation”, shows that it has total assets of £847.15 million. The trust’s NAV per share on October 31 was 221p, with a discount of share price to NAV of 7.2%. Its biggest holding is SpaceX, which accounts for 8.4% of its total assets.