BRW - GIM: Tender Results And Going Forward

2023-11-29 09:17:13 ET

Summary

• Templeton Global Income Fund's tender offer for 45% of shares at 99% of NAV has concluded.
• The potential gain from the tendered shares should be balanced against the expected loss due to the post-tender drop of the untendered shares.
• GIM will transition into a Saba-managed fund, and we offer our thoughts on what investors should do now.

GIM tender offer results

The tender offer for Templeton Global Income Fund (GIM) was completed on November 9, 2023 .

From the press release:

November 13, 2023 04:15 PM Eastern Standard Time

NEW YORK--((BUSINESS WIRE))--Templeton Global Income Fund ((NYSE:GIM)) (the "Fund") today announced final results of its tender offer (the "Tender Offer") to purchase for cash up to 45% of its outstanding common shares (the "Shares").

The Tender Offer, which expired on November 9, 2023 at 5:00 p.m. Eastern Time, was oversubscribed.

Therefore, in accordance with the terms and conditions of the Tender Offer, the Fund will purchase Shares from all tendering shareholders on a pro rata basis, after disregarding fractions, based on the number of Shares properly tendered ("Pro-Ration Factor"). The final results of the Tender Offer are provided in the table below.

Number of Shares Tendered
Number of Tendered Shares to be Purchased
Pro-Ration Factor
Purchase Price*
70,503,168
46,221,447
0.655593461
$4.19

* Equal to 99% of the Fund's net asset value per Share as determined as of the close of the regular trading session of the New York Stock Exchange on November 9, 2023 (the day on which the Tender Offer expired).

This tender offer occurred at the same time as Saba was taking over GIM, as discussed previously here: Saba Takes Over GIM .

In due course, GIM will be renamed as the Saba Capital Income & Opportunities Fund II with ticker "SABA."

GIM's was a very generous tender offer, with up to 45% of outstanding shares repurchase at a purchase price equal to 99% of NAV. However, I had modeled a more cautious profit/loss expectations for the GIM tender offer due to two additional lines of consideration. As discussed previously with our Investment Group in a CEF Weekly Roundup:

First, GIM is more likely to fall to the discount level of a fund like BRW, a former Saba takeover target, which is currently trading at a discount of around -10%, rather than GIM's own 52-week discount average of -7.67%. This is because GIM's discount has narrowed throughout this year as the market anticipated a Saba victory.

Second, with Saba holding around 30% of shares and intending to submit all their shares for tender, we would expect a less favorable proration factor for all shareholders. Generally, I model a 50% tender rate, which would imply 90% of shares being accepted for tender (double of the maximum 45% of shares accepted), but with Saba fully subscribing for the tender, I'm modeling a more modest 70% proration factor instead.

Taking these factors into account, I'm modeling a +1.37% overall tender P/L for those buying GIM now and subscribing with all their shares for the tender offer. The below table auto-updates in our Corporate Actions Tracker tool.

Remember that for all tender offers, the potential gain from the tendered shares should be balanced against the expected loss due to the post-tender drop of the untendered shares.

Of course, those already holding GIM should remember to tender all of their shares by the deadline.

We can see that the effect of the post-expiry drop playing out for GIM. As I predicted, GIM quickly dropped to a double-digit discount as soon as the offer expired.

The pro-ration factor for GIM was 65.56%, an even less desirable result than my modeled 70%. Two days before expiry date (the latest that one could buy GIM and still be guaranteed to tender shares), GIM closed at $4.08, at a -4.00% discount. The 65.56% of shares that were accepted for tender at $4.19 would thus have scored a +2.70% gain. However, the day after expiry, shares dropped to $3.81 for a -10.77% discount. Thus, the remaining 34.44% untendered shares would have suffered a price loss of -6.62%. As a result, the profit/loss for the overall position would thus have been -0.50%. However, note that the exact P/L computation will depend on the precise entry and exit points of each investor.

Going forward

The GIM tender offer illustrates the concept that tender offers are not "free money," and that sometimes, it may be better to sell a fund completely in advance of the expiry date (i.e., to not participate in the tender) if the discount contracts too much, in order to avoid the post-expiry drop in share price for the untendered shares.

On the other hand, holding through the tender offer without submitting shares is typically the least favorable option as it simply results in money left on the table. There is never 100% investor tender rate in any tender offer, which I attribute mostly to investors not paying attention, or else having some other tax reasons for not participating. Remember, you can always buy back the same fund for cheaper even if you do take part in the tender offer, if you wanted to keep your position size the same.

What to do now? I anticipated that the new GIM, which will be duly renamed as the Saba Capital Income & Opportunities Fund II with ticker "SABA," will be managed in much the same way as Saba Capital Income & Opportunities Fund (BRW), a CEF that Saba formerly took over in similar fashion from Voya (see

Right now, BRW owns an eclectic mix of other CEFs, special purpose acquisition companies ("SPACs"), senior secured and unsecured loans, private funds, among other vehicles. For disclosure, we also own BRW in our Tactical Income-100 portfolio. Our Investing Group's author Nick Ackerman reviewed BRW in a separate article here .

Former investors of Templeton Global Income Fund should therefore be aware that the fund will no longer be a global bond income fund, far from it in fact. Therefore, if that was their original intention for investing in GIM, they should sell GIM now and replace with another similar CEF or ETF.

For investors comfortable with investing alongside the activists Saba, they do not need to take any further action and the transition from GIM to SABA will occur automatically.

For further details see: