Tomorrow's Business Today
Does the UK Takeover Code need a hasty rewrite?
There’s a crunch vote tomorrow which the world of investment trusts and the wider City will be watching closely.
Saba Capital has taken a 30% stake in the Edinburgh Worldwide Investment Trust and nominated three directors to replace the board.
This is its third attempt to oust the board and it seems to have the support of some other institutions, so Saba might win this time. All it needs is a simple majority of the votes cast.
Until recently, the perhaps quaint world of investment trusts wasn’t used to coming under fire from punchy New York hedge funds openly telling management they aren’t up to it.
The Association of Investment Companies, the trade body, tried to get its retaliation in first with a piece at the weekend.
Chief executive Richard Stone thinks the UK takeover code, a staple of the City since 1968, needs changing.
As it stands, as it has always stood, if you have more than a 30% stake in a company you have to bid for the rest of it.
Because these investment trusts have so many small investors who bought via online share platforms or tracker funds, Saba and co can now get control of a business with only a 30% stake, is his point.
The smaller retail investors are just less likely to vote. Stone writes: “The playing field is definitely not level when one shareholder has a big block vote and the rest of the shareholder register is so highly fragmented.”
He suggests the rules be altered so that a bid must be triggered at 20%. The AIC is lobbying the FCA and the government on this, something it is very good at.
It thinks that so much has changed since 1968 that the rules are out of date. Why should Saba or others be able to use repeated requisitions on the same issue until voter fatigue kicks in?
This is a nice try, but I’m not sure it’s going to wash.
Investment trusts have always had fragmented shareholder registers — loads of small investors who didn’t vote at AGMs.
The managers of the trusts were often entirely happy with this arrangement, since it meant they could do what they want without much scrutiny.
If the takeover code was changed, presumably that would have to be for the whole market, not just investment trusts.
Would other businesses that have lots of retail shareholders also benefit from this extra protection? How would that be enforced?
Maybe the truth here is that Edinburgh and co should have been encouraging more engagement from all investors all the time. Not just now they are under fire.
Saba Capital might be good for the market, or not, but the rules are there for a reason and it would seem odd to change them now.
The 30% rule has worked perfectly well. Edinburgh and other trusts, I fear, will have to win or lose by that same rule.
Please send candidates for press release of the day to:
Press release of the day
More homeowners should tap “usable equity” in their homes rather than rely on unsecured borrowing at higher rates, says this from Selina Finance.
London homeowners are sitting on £81bn in usable home equity that could be employed to generate family wealth.
With a borrowing threshold of 85% loan-to-value, the UK has £412bn that could be put to use.
Hubert Fenwick, Chief Executive Officer at Selina Finance, says: “As the structure of homeownership evolves with people buying later and carrying debt for longer, it is worth considering whether traditional approaches to housing equity remain appropriate.”
Stories that will keep rolling
1) Have we gone too far with British declinism? FT
2) Sam Altman stole a charity, says Elon Musk as OpenAI trial begins. The Times
3) Britain faces stagflation threat warns Lloyds. Telegraph
4) How the Renters’ Rights Act will affect landlords and tenants. Daily Mail
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