Four out of BlackRock's nine UK investment trusts, including the FTSE 250-listed Blackrock World Mining Trust (LSE:BRWM) and BlackRock Smaller Companies Trust announced that their boards have entered into agreements with US raider Saba Capital.
In return, the activist hedge fund has given a number of undertakings not to take any hostile action for the next two and a half years.
Saba has agreed to stop its campaigns where it had been calling for fresh directors to be installed and for BlackRock to be removed as manager at some of these funds.
Other BlackRock closed-end funds in the US have also entered into separate agreements with the US raider, whose boss Boaz Weinstein said the proposals were made after "constructive discussions with BlackRock" and that "by committing to shareholder-friendly initiatives, liquidity events and governance enhancements, value can be unlocked for all investors".
The UK boards, which also include the BlackRock Energy & Resources Income Trust and the BlackRock American Income Trust, all say their companies have not given any monetary consideration to Saba for this agreement but say they are committed to strong high corporate governance standards and putting first the interests of shareholders as a whole.
Stifel analyst Iain Scouller said, "The Saba saga has become more bizarre", with a key shareholder vote due for another trust in the sector (Herald) happening elsewhere today.
The commitments "are a bit vague", the analyst added, "and we are surprised there have not been more 'concrete' agreements such as an arrangement for a conditional tender offer if a discount reaches a certain level, or a tender is triggered by underperformance."
The full list of undertakings is that:
- Saba will not put forward any proposals to shareholders or requisition any resolution or general meeting of the company;
- Saba will not seek to change the composition of the board;
- Saba will not seek to control or influence the board or fund or the policies or management of the Fund;
- where able to do so, if Saba holds any interests in the issued share capital of the company, Saba will vote on any resolution at any shareholder meeting of the company in accordance with the board's recommendation;
- Saba will not engage, directly or indirectly, in any short-selling of the company's shares; and
- Saba will not engage in any takeover offer for the company (unless recommended by the board or made by an independent third party without the involvement of Saba) or any other extraordinary transaction with respect to the company (other than a transaction recommended by the Board or on the same basis as other shareholders).
The trigger for these announcements, Scouller said, appeared to be an arrangement announced yesterday for tenders at two BlackRock US closed-end funds, with a tender for 50% of outstanding shares in the Innovation and Growth Term Trust and 40% of the Health Sciences Term Trust, with both tender offers at a price of 99.5% of their NAVs.
He said the agreement "appears to be specific to BlackRock Trusts and appears linked to the negotiations around exit mechanisms and agreements to pause hostilities against US closed-end funds.
"However, it will be interesting to see if other non-BlackRock boards are prepared to come to an agreement with Saba, by giving commitments around governance and 'putting first the interests of shareholders as a whole'.
"We do think it is unusual for a board to make an arrangement with one shareholder who is deemed as potentially hostile, given that this could open the door to other 'activist' investors also looking for all sorts of agreements in return for a pause in any hostile actions."