Update: Baillie Gifford US Growth (USA) has published its defence document against Saba Capital, the activist hedge fund seeking to replace its board at the annual general meeting next month, saying shareholders should prevent the US firm from destroying the investment trust’s successful approach.
Chair Tom Burnet said the £980m investment trust faced an “existential” threat as it battled with Saba for the third time in 21 months. He urged shareholders to vote against Saba’s three resolutions before, or at, the AGM in London on 23 October. These would appoint Saba’s nominees in place of the current directors and would mark the end of the company’s successful strategy of investing in exceptional US growth companies such as SpaceX, Anthropic, OpenAI and Alphabet, he said.
Burnet appealed to shareholders to rally behind the board once again, saying “your vote does matter”. Private investors hold 22% of the trust through Hargreaves Lansdown, AJ Bell and Interactive Investor with wealth managers increasing the “retail bloc” that could outnumber Saba’s 29% stake if turnout is strong.
Turnout will be particularly critical as a new, possibly hostile, shareholder has emerged on the register. Sessa Capital, like Saba, a New York-based hedge fund, disclosed a 5% stake in USA last week. The special situations investor is thought to have held a stake for some time. It does not have a history of activism, but is thought likely to be supportive of Saba.
Burnet said Saba was not interested in liquidity and had turned down an opportunity to sell its 29% stake at 99.75% of net asset value (NAV) with fund manager Baillie Gifford offering to “many millions of pounds” of the transaction costs.
“Saba’s actions lead the board to believe that Saba is not interested in achieving liquidity for itself but is intent on obtaining control of the company at the expense of other shareholders,” he said.
He told QuotedData the board had been “resolutely independent” in doing its job to ensure Baillie Gifford performed well for shareholders. This was in contrast to Saba’s nominees. “One works for Saba for goodness sake!” he said in reference to James Waterlow, Saba’s recently appointed UK managing director.
After a sharp recovery from the 2022-23 growth crash, USA has achieved an annualised investment return since launch in March 2018 that Burnet said was among the top 10% of all UK-listed investment companies and all US equity open-ended and exchange-traded funds.
The publication of the circular containing details of the AGM came with the trust’s annual results showing the trust beat its benchmark in the year to 31 May. Underlying net asset value growth of 31% underpinned a 44.5% total return to shareholders, ahead of the 29.8% advance in the S&P 500 index.
Yesterday also saw encouraging news on Zipline, the private US drone company that was a 1.8% position at the end of May. Bloomberg reported the company, which operates home deliveries as well as supplying medicines around the world, was in discussions about a $1bn fund raise that would more than double its valuation to around $20bn from $7.6bn.
USA shares rose 1.9%, or 6.7p, to 360.7p. They closed last night on a 2.8% discount to NAV. Over three years they have soared more than 122% but are flat over five years.
Our view
James Carthew, head of investment company research at QuotedData, said: “Saba’s main message has been that it wants all shareholders to be offered a 100% cash exit at or near NAV. The Baillie Gifford US Growth board says it put an exit proposal on the table that would have provided an exit at 99.75% of NAV, only achievable because the investment manager would have contributed towards the expense, but Saba rejected that. So what, exactly, is Saba playing at? Sticking its own nominees on the board will not get it a better exit deal and trying to get itself appointed as manager is likely to fall foul of the new rules being implemented by the FCA. Is it aiming to extract a payment in exchange for a promise not to attack the trust for a while on top of a cash exit opportunity? We have seen something similar with other trusts, but it is something I fundamentally disagree with as it favours Saba over other shareholders, giving the lie to any claim to be acting in all shareholders’ interests. Once again, USA must suffer the disruption and expense of fighting off a self-interested activist. Once again, USA shareholders must rally around and reject its proposals. Saba already has a litany of failures under its belt, Gore Street Energy Storage (GSF) being the latest. It is time that it walked away from the UK investment companies market and left us in peace.”