BRW - GIM Tender Offer Results Confirm Advantages Of Tendering 100%

2023-11-16 15:44:47 ET

Summary

• The results are in on Templeton Global Income Fund's tender offer.
• Shareholders who did not participate in the tender offer subsidized the premium price received by those who tendered.
• Shareholders who participated got 25 cents more than market price for the 65% of their tendered shares that were accepted.
• This confirms that tendering 100% of our shares is generally the best way to play tender offers, especially if instigated by activist firms.

The results are in on the tender offer by Templeton Global Income Fund ( GIM ), which had recently offered to purchase 45% of its outstanding shares at a price of 99% of Net Asset Value (as a result of pressure from the SABA activist group ).

Since GIM had recently been selling at a discounted market price in the 94-95% of NAV range, being able to sell out at 99% would mean a shareholder would likely receive 4-5% more than the market price. A tender offer at an above-market price means the fund is using its assets to buy in shares at a premium price that is essentially a gift or subsidy to its own shareholders. Since the tender offer is only for 45% of the total outstanding shares, it means that the remaining 55% of shares will all be worth a bit less than they otherwise would have been worth, after the tender offer is completed, because of the extra money spent to acquire the 45% of tendered shares at an above market price.

Tender offers are voluntary. No shareholder is forced to sell their shares as part of the tender. But since the un-tendered shares (i.e. the remaining shares after the tender is over) are subsidizing the above-market price being paid for the tendered shares, any shareholder who wants to maximize their gain (or minimize their loss) should try to have as many of their shares included in the tender as possible, and to therefore end up owning as few of the remaining un-tendered shares as they can.

The 45% of shares to be included in the tender are pro-rated among all the shares tendered. In this case the number of shares tendered was 70,503,168, while the 45% of GIM's entire share count (just under 103 million) that was eligible to be tendered was 46,221,447. The "pro-ration factor," the percentage of total shares tendered that is actually accepted for purchase at the tender price, is 46,221,447 divided by 70,503,168.

46,221,447 / 70,503,168 = 65.5%

So the name of the game, if you were a shareholder, was to ensure that you got as many of your shares included in that 70.5 million of tendered shares, so you'd end up, after they "pro-rate" the 46.2 million eligible shares among the 70.5 million tendered, with the maximum number of your shares actually accepted for tender.

Obviously if every single shareholder tendered exactly 45% of their shares, then they would all have had 45% accepted for tender, and the costs and benefits of the tender would have been evenly split among every shareholder. But of course lots of shareholders never bother to read the tender announcements, or just don't understand them, and do not tender any of their shares. Those shareholders are the losers, since their shares are worth less after the tender is completed, because they bear the entire cost of the tender offer (i.e. paying above the market price for the shares that are bought in), while getting none of the benefit.

The way to get the maximum number of your shares accepted for tender, as I described in previous articles , was to tender 100% of them. That's what I did, so I had 65.5% of my shares accepted. They were purchased at a tender price of $4.19, which represented 99% of the Net Asset Value of GIM back on November 9, when the tender offer expired. The market price on that date was $3.94, so tendering shareholders received 25 cents per share above market, a 6% market premium. Obviously a lot of GIM shareholders must not have accepted the tender offer, in order for those of us who tendered all our shares to be able to actually sell 65% of them, when the tender offer was limited to 45% of the total shares.

Since then the market price has dropped by 5 cents, to $3.89, so we've given back 5 cents of the 25 cent gain, on the 1/3rd of our original holding that wasn't purchased via the tender offer.

Bottom line

I'm glad I tendered but haven't decided what to do with my remaining GIM holding. GIM's name is being changed to SABA Capital Income & Opportunities Fund II, a sister fund and similar name to SABA Capital Income & Opportunities Fund ( BRW ). That suggests that Boaz Weinstein, who runs SABA and has put his initials on BRW (middle name "Ronald") and his firm name on the "new" GIM (which will have the symbol "SABA"), is serious about actively managing these funds as part of the SABA "family of products".

That would make GIM/SABA the fourth fund I know of that is actively managed by closed end fund activists:

• The BullDog group, that owns Special Opportunities Fund ( SPE ) and High Income Securities Fund ( PCF ), and
• SABA, with its BRW and GIM/SABA (and also its ETF "fund of funds", SABA Closed End Funds ETF ( CEFS ), which not surprisingly, owned a big chunk of GIM)

This has been an interesting, somewhat educational, and apparently profitable, exercise. I say "apparently" because the jury is still out on whether GIM/SABA will be a worthwhile hold from this point on. I am still undecided about whether to hold what I still own, buy more with the price down and the discount even larger than before, or sell my remaining shares and just pocket the profit. I like Boaz Weinstein, although my existing holding in BRW is at about the same discount and pays a higher distribution yield than GIM/SABA. So the question is which one will pay off more in the long term.

We shall see.

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