Edinburgh Worldwide offers shareholders a cash exit and SpaceX upside in an attempt to put an end to the Saba saga

In response to Saba Capital's activism, the board of Edinburgh Worldwide is offering shareholders a cash exit as well as an uplift from SpaceX's planned IPO

With the board of the investment trust issuing a 100% tender offer that can pass without Sabas support, the long-running drama between Saba Capital Management and Edinburgh Worldwide (LON:EWI) may finally be coming to an end.

In recent years, the New York-based activist investor hedge fund Saba has amassed holdings in a number of UK investment trusts. In addition to establishing an exchange-traded fund that owns these trusts, Saba has frequently introduced resolutions intended to remove the boards of a number of them, particularly Edinburgh Worldwide (EWIT).

All of these have failed thus far; the most recent vote, which was held on January 26, saw EWIT's shareholders defeat Sabas's proposals with over 53% of votes cast in favor of the current board, excluding Sabas' own votes. Nearly 93% of shareholders voted against Saba, excluding his own votes.

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Start your trial, but Saba went on to say that at Edinburgh Worldwide's next AGM, there would be a second vote on the board.

The board of EWIT has responded by proposing a tender offer for up to 100% of the shares, which could effectively wind down the trust while allowing shareholders to keep any potential upside from SpaceX, the trust's largest holding, in the event of a future listing.

"We have reached the end of the road with Saba's obsession to break the status quo and its continuing disregard for the expressed wishes of other shareholders," EWIT chair Jonathan Simpson-Dent stated. "By providing a sizable cash exit near net asset value, or NAV, and maintaining exposure to SpaceX until a future liquidity event, after which shareholders would receive a further cash payment, this unfortunate but necessary step aims to protect shareholders from being trapped by Saba. A "

Saba's vote is not necessary for the tender offer to move forward because it only needs a simple majority of votes.

How is Edinburgh Worldwide's proposed tender offer going to operate?

Eligible shareholders may tender up to 100% of their shares in Edinburgh Worldwide, assuming the tender offer is approved.

Approximately 85% of those who opt to do so would be paid in cash at near NAV. EWIT's more liquid assets would be sold to finance this. Additionally, after SpaceX lists, which the board believes will happen within a year, they will receive about 15% deferred cash based on the company's realized value.

The number of shares available on the market may drop below the 10 percent threshold required by FCA regulations, effectively forcing the trust to wind up, if the majority of shareholders support the proposal (as the board has encouraged them to) and then tender all of their shares (as EWIT's directors intend to with theirs).

Since the tender offer needs a simple majority of votes to move forward, Saba's vote is not necessary.

What makes the tender offer from Edinburgh Worldwide unique?

In the past, Saba suggested that the directors it has nominated give EWIT shareholders the opportunity to leave the trust at 99 percent of NAV in the event that they are elected to assume management.

According to Edinburgh Worldwide, there are two significant differences between Sabas and its most recent proposal.

First off, in the event of SpaceX's planned IPO, shareholders would still have exposure to the company under EWIT's proposal. Its valuation would probably rise significantly from the £800 billion at which it last raised capital. According to recent reports, SpaceX's IPO valuation may reach £1.75 trillion, but EWIT's NAV does not currently reflect this.

Additionally, EWIT emphasized that while Saba cannot fully commit to honoring the tender offer if it is sincere about the independence of the board members it has nominated.

Could the FCA alter the regulations pertaining to investors who are activists?

The board of EWIT made it clear that this was not the solution it was looking for when it proposed the tender offer. It also expressed dissatisfaction with Saba's repeated proposals, which the majority of the trust's shareholders had rejected.

Simpson-Dent stated, "The current regulatory framework permits a determined minority shareholder to effectively gain board and managerial control through repeated actions which explicitly oppose the desires of other shareholders." "Even though we have inspired the FCA to take action, solving this systemic issue will require more time than Saba's recurring cycle of smash and grab. Unfortunately, we think Saba's success is just a matter of time. A "

The industry association that represents UK investment trusts, the Association of Investment Companies (AIC), has reaffirmed its demands that the FCA modify the regulations to stop these kinds of recurring minority shareholder campaigns.

"The FCA needs to take immediate action on the Listing Rules to protect the long-term interests of shareholders," stated AIC CEO Richard Stone. "A minority shareholder can repeatedly attack an investment trust under the current rules, which makes them unsuitable for their intended use. If the FCA doesn't take action, this might continue to occur and more UK-listed businesses might vanish. The "

However, EWIT seems to have concluded that it will be too late to stop Sabas' most recent attempts to remove the board if any changes to the regulations are implemented.

When will the tender offer from Edinburgh Worldwide be put to a vote by shareholders?

The vote on Edinburgh Worldwide's tender offer has not yet been scheduled. A circular detailing the vote will be released in due course, according to the investment trust.