Herald urges shareholders to VOTE AGAINST Saba’s resolutions

Following its announcement on 20 December, Herald (HRI) has released a circular strongly outlining why the board believes shareholders should vote against all of Saba’s proposed resolutions. The circular also contains a notice of the requisitioned general meeting which is to be held at 10-11 Charterhouse Square, London EC1M 6EE on 22 January 2025 at 12 noon.

The circular, extracts from which are reproduced below, focuses on the lack of relevant information provided by Saba and the impressive long term returns generated by HRI, and reflects a similar view to our own position: [QD comment from Matthew Read: Saba’s proposal is utter madness in our view. Why would the shareholders of any of Saba’s targets want to hand over control to one dominant shareholder who can then act entirely in its own interest, rather than the collective interests of all? In Herald’s case, Saba Capital has acquired around 20% of the trust’s issued share capital but, because of the long-running issue of retail investors who hold their shares through the platforms tending not to vote, investors such as Saba get a disproportionate share of the vote. This is a concern, particularly for a trust such as Herald whose investments are very long-term in nature (it has a very long tail of small investments) as Saba’s proposals are very short-term and look likely to erode significant value for long-term investors were Saba able to drive through what would amount to a fire sale for Herald’s portfolio.] 

Why you should reject Saba’s Demands and VOTE AGAINST the proposed Requisitioned Resolutions

The board believes that, since its inception, Saba has materially underperformed Herald. Since Saba’s inception in April 2009, Herald has produced a NAV total return of over 865%. You should vote against the requisitioned resolutions to avoid losing the opportunity to remain invested in Herald’s strategy, which has been highly successful over the long term.

• Saba’s opportunistic proposal to take control: Your board believes the requisition is part of a campaign by Saba to take control of your company. Your board believes that only votes against the requisitioned resolutions can protect shareholders’ interests.
• Your board believes that if Saba gains control and seeks to implement a different strategy, significant value could be lost for shareholders as a result of forced selling of parts of the portfolio.
• In recent weeks, Saba has been building its interests in the company while shares have traded at very low single-figure discounts. Your board believes this may demonstrate that Saba wishes to take control of your company for its own economic benefit rather than due to concerns about the company’s performance or share rating.
• Saba has stated that it intends to propose that Saba be appointed as the manager to pursue its own investment strategy, which is expected to be focused on the short-term and fundamentally different from your company’s current investment policy. However, Saba has failed to provide concrete details of these plans and the terms upon which it would be appointed.

In an open letter to the shareholders of the targeted trusts, Saba explained that it intends to requisition each of the boards of the targeted trusts to convene general meetings, at the latest, by early February 2025 with a view to removing each of the targeted trusts’ existing directors and appointing Saba nominated directors in their place. Saba also confirmed that its nominated directors, if elected to office, will consider terminating each of the targeted trusts’ existing management contracts and offering liquidity near to net asset value, and that the newly constituted boards will then consider new managers, with Saba proposing itself to each board. Were Saba to be appointed as manager, the board believes Saba will follow an investment strategy of purchasing discounted investment trusts and/ or combining the portfolios of the targeted trusts, that it hopes to manage, in an attempt to achieve the benefits of scale. To this end, the requisitioned resolutions seek to remove each of the company’s experienced and independent directors from office and replace them with Saba’s proposed appointees.

The board considers Saba’s claims, insofar as they are related to the company, to be unfounded and the requisitioned resolutions to be at odds with the interests of shareholders as a whole.

You should vote against the requisitioned resolutions to protect the value of your investment and to ensure Saba does not take control of your company for its own economic benefit.

• Herald’s strong, independent board and high standards of corporate governance: Saba’s proposed appointees either work for or have been nominated by Saba. They are not considered to be independent and, therefore, may not have your best interests at heart. Saba has given no assurance that the current safeguards for shareholders, described on pages 10 to 12 of the circular, will be retained if Saba and the proposed appointees take control. You should vote against the requisitioned resolutions to ensure that your company retains a fully independent board focused on protecting shareholders’ interests.
• Herald’s investment outlook: The technology sector is experiencing a particularly dynamic phase. Drivers include: (i) the rapid acceleration of computational power and data analytical capabilities enabling new products and services driven by artificial intelligence and other disruptive technologies; (ii) the journey to net zero; and (iii) an unstable world geopolitically leading to innovation in the defense and cybersecurity sectors, amongst others. Investments in the company’s target companies often start small and need to be nurtured to enhance value for shareholders. You should vote against the requisitioned resolutions to remain invested in the company’s distinctive investment strategy.

For these reasons, and those set out below, your board recommends unanimously that all shareholders vote against each of the requisitioned resolutions.

The proposals are not in the best interest of all shareholders; the board recommends voting against the requisitioned resolutions at the requisitioned general meeting.

Andrew Joy, chairman of Herald Investment Trust plc, said: “Since launch in 1994, Herald Investment Trust’s investment strategy has delivered outstanding investment performance and substantial returns for its shareholders, and its offering is both successful and unique in the UK-listed investment company sector. The board believes Saba wishes to take control of the company for its own economic benefit and to change the company’s investment strategy, which your board believes could result in significant value being lost for you, our shareholders. We have outlined in the circular posted today why the proposals from Saba are not in the best interests of all shareholders, and we strongly urge all shareholders to vote against the requisitioned resolutions proposed.”

HRI: Herald urges shareholders to VOTE AGAINST Saba’s resolutions