Investment trust Schroder UK Mid Cap Fund (SCP) has launched a tender offer for up to 100% of its share capital at net asset value (NAV) less costs.
The tender gives shareholders including Saba Capital the option of a full cash exit while preserving the FTSE 250-focused trust for those who want to stay invested.
The board and investment manager Schroders are confident in the £238 million cap fund’s strategy. In fact, they believe there are ‘attractive long-term investments’ within the UK mid cap sector, which is a source of potential ‘multi baggers’ according to manager Jean Roche.
Following the conclusion of the tender process, the board will implement a discount management policy aimed at maintaining a mid-single digit discount ‘in normal market conditions’. The board also reconfirmed there will be a triennial continuation vote, starting at the 2029 annual general meeting.
Bye, bye Boaz
US activist Saba Capital has a 19.5% stake in Schroder UK Mid Cap Fund. Boaz Weinstein-bossed Saba has agreed to support the proposals, tender all of its shares and commit to a three-year ‘standstill’ deal.
The standstill eliminates a significant overhang for Schroder UK Mid Cap Fund, whose top 10 holdings span the likes of food producer Cranswick (CWK), active manager Man Group (EMG) and shipbroker Clarkson (CKN).
It removes the immediate threat of further activist actions by Saba, and gives the board and manager breathing space to demonstrate the merits of the strategy and narrow the NAV discount.
Mid cap ‘multi baggers’
Roche commented: ‘The UK mid cap market continues to provide, every day, a plethora of potentially high returning investment opportunities, such as those we describe as the “multi baggers”, and we look forward to continuing to unearth these opportunities for investors.
‘Valuations have rarely been more attractive as evidenced by a spate of recent M&A approaches for companies in the universe, together with a very high incidence of share buybacks, underlining the uniqueness and/or cash generative nature of these companies.’
The tender offer and standstill agreement looks like a good compromise for both parties. Saba can make an exit from Schroder UK Mid Cap Fund. Meanwhile, maths whizz Roche can focus on managing a differentiated fund with an impressive long-run track record.
Over the one, five and 10 years to 31 March 2026, the trust’s NAV total return has outperformed the FTSE 250 (ex Investment Companies) Index by 4.3%, 2.5% and 18.5% respectively.
Both the board and Roche believe that the outlook for UK mid caps is ‘compelling’. They point out that the long-term performance of the benchmark has matched the total return of the S&P 500. In addition, they observe that current mid cap valuations are ‘at the lower end of their historic range’.
Learn more about Schroder UK Mid Cap Fund here: https://www.schroders.com/en-gb/uk/individual/funds-and-strategies/investment-trusts/schroder-uk-mid-cap-fund-plc/
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