Embattled Impax Environmental Markets (IEM) is set to fold after its battle with US activist Saba took a troubling turn for the investment trust sector.
Boaz Weinstein-led Saba threw the £840 million trust’s future into question by refusing to sell its 21% stake in a continuation tender offer.
| Share price: 448p (+1.6%) | Total assets: £985m |
| Market cap: £755m | NAV: 470.9p |
Since no tender election was received from Saba, IEM will now terminate the continuation tender offer. Complaining that Saba has ‘refused to engage constructively’, the board sees no choice but to proceed with an exit tender offer.
Taking no action ‘risks prolonged instability, significant costs, and a much worse outcome for shareholders’, warned IEM chair Glen Suarez.
Boaz, be reasonable
He also published an open letter to Weinstein in which he had urged the Wall Street raider to be ‘reasonable’ and accept the continuation tender offer.
Suarez said he was surprised to learn Saba did not intend to tender its shares, given the board had offered to buy its holding at net asset value (NAV) minus costs.
This would have enabled remaining shareholders to stay invested in the London-listed environmental fund. IEM’s objective is to enable investors to benefit from ‘growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste’.
Expensive defence
Suarez expressed disappointment Saba had blocked the board’s attempt to avoid an ‘ongoing, destabilising and expensive dispute’.
He also revealed Weinstein had responded with a counter ‘strategic’ proposal to merge IEM with another investment trust in which Saba has a large position, yet which has an entirely different investment focus.
This looks to be a reference to Herald (HRI), the global technology smaller companies trust managed by Katie Potts, in which Saba has a 31% stake.
Suarez wrote: ‘The board failed to see how this proposal could ever be in the interests of any of its shareholders aside from Saba.’
In the letter, Suarez urged Weinstein to be ‘reasonable’ and accept the continuation tender offer. Otherwise the board would launch a second tender offer to let other shareholders exit at NAV less costs and avoid ending up in a Saba-controlled and likely managed trust.
Analyst views
James Carthew, head of investment companies at QuotedData, commented: ‘The Impax story illustrates the damage that anyone with more money than sense can do to the investment companies sector if left unchecked.
‘Appeals to reason appear to have failed. It is time for the FCA to act. Clarifying the related party rules, as Herald’s board has asked the FCA to do, would choke off Saba’s main line of attack – inserting directors it controls onto boards so they can hand it the management contract.’
Carthew added: ‘It may also be time for corporate advisers to dust off the rule book and explore legal avenues to insert poison pill defences into investment company structures. I hate that idea, but sometimes it is a case of the lesser of two evils.’
Winterflood observed: ’While the tender will enable IEM shareholders to exit at NAV, they did recently affirm their support for continuation by 90% of votes cast.
‘Thus, we fail to see how the current dynamics benefit the wider investor base, and following Herald discussing their predicament with the FCA, the IEM chair’s letter foreshadows legislative remedies.
‘While we do not expect a near-term policy response, we think a clear outline of the intended strategy by Saba would be a step in the right direction.’
Read the press release here: https://www.londonstockexchange.com/news-article/IEM/saba-condition-not-satisfied/17479549
