BRW - Saba Takes Over GIM

2023-09-20 09:17:01 ET

Summary

• Saba has replaced the board of GIM and selected itself to takeover from Templeton.
• The transfer of management contracts is subject to shareholder approval.
• A tender offer for a significant number of shares will be conducted if the transfer is approved.

This one has been a long time coming. Saba's first 13G (indicating a passive stake) against Templeton Global Income Fund ( GIM ) was filed on July 24, 2020, while its first 13D (indicating activist intent) was filed around four months later, on November 18, 2020.

Now, Saba is finally victorious . Just like with Saba Capital Income & Opportunities Fund ( BRW ), which Saba took over from the former Voya Prime Rate Trust (PPR) (see Saba Vs. Voya - Round 3: PPR Metamorphosis ) ( public link ), Saba has kicked out Franklin Advisers as managers of GIM, and replaced it with themselves, contingent upon shareholder approval. From the press release:

Templeton Global Income Fund’s Board of Trustees Selects Saba Capital as New Investment Adviser

August 25, 2023 06:00 PM Eastern Daylight Time

NEW YORK--( BUSINESS WIRE )--Templeton Global Income Fund [NYSE: GIM] (“GIM” or the “Fund”) today announced that the Fund’s Board of Trustees (the “Board”) has selected Saba Capital Management, L.P. (“Saba”) to serve as the new investment adviser of the Fund (the “Adviser Transition”) and to replace the Fund’s current investment adviser, Franklin Advisers, Inc. (“Franklin”).

This process was achieved by gradually filling GIM's board with Saba nominees, which was facilitated by Saba themselves owning 38% of GIM shares at their peak. Although it should be mentioned that the ejection of previous board members was contentious and did not pass without litigation (see here and here ).

In brief, Templeton alleged that Saba purchased "shares from select shareholders significantly above market value to ensure winning the vote". While GIM did have the support of three independent proxy advisory firms (Institutional Shareholder Services Inc., Glass, Lewis & Co. and Egan-Jones Proxy Services) which recommended voting alongside management, ultimately it did not matter and Saba managed to get their candidates installed on the board.

Facing an outnumbered board, the remaining three non-Saba nominated board members also resigned. GIM's management should be commended on withdrawing the lawsuit and not drawing out the litigation further, as the money for this would have continued to come right out of the fund's assets (which belong to shareholders).

Afterwards, the trustees established a "Special Committee" to review several investment advisers to take over from Franklin, and surprise, surprise, chose Saba.

In light of the Fund’s underperformance compared to its peers over various periods, the Board established a Special Committee to review options for addressing the Fund’s performance and the Committee ultimately decided to commence a search for and select a new investment adviser for the Fund. The Special Committee, which consisted solely of independent trustees, conducted a request for proposal process involving several investment advisers. After careful evaluation, the Special Committee recommended Saba based on the firm’s investment capabilities and track record, including its management of the Saba Capital Income & Opportunities Fund (“BRW”), another publicly-traded closed-end fund that has an investment strategy similar to that proposed for GIM.

GIM will hold a special shareholder meeting in the early part of Q4 to vote on the new investment management agreement and other matters. The fund also intends to consider a self-tender offer for a "significant number" of GIM's shares if the adviser transition is approved by shareholders. With GIM at a -9.34% discount (as of 9/15), this could allow for a significant unlocking of the fund's value. However, the precise percentage of shares to be accepted for tender remains unknown at this time. From the latest proxy statement :

The Special Committee has recommended that the Fund conduct a self-tender offer for a significant number of the Fund’s outstanding shares prior to the effective date of the Adviser Transition (the “Tender Offer”). Saba has informed the Fund that all investment funds it manages are likely to subscribe to such offer. While the investment funds managed by Saba will benefit from the Tender Offer, their right to participate will be the same as every other Shareholder, i.e., in strict proportion to their ownership interest in the Fund. The Fund believes that all Shareholders will benefit from the Tender Offer, and does not believe that the Tender Offer results in a conflict of interest.

For reference, when PPR (now BRW) was taken over by Saba, 30% of shares were accepted for repurchase .

Saba currently holds around 30% of GIM (down from its peak due to some recent selling), so I think that the adviser transition proposal is quite likely to pass. We could therefore see GIM transform into a completely different fund, probably to one similar to BRW, in order to effectuate Saba's own investing strategies. In other words, in one swoop, Saba will have gained an extra $360 million to play with.

As an aside, GIM doesn't seem to have done all that badly considering its exposure. Although its portfolio of foreign government bonds has returned -5.65% over the past 10 years, the iShares International Treasury Bond ETF ( IGOV ) has done even worse at -17.67%. However, this does depend on the time period chosen as we can see from the chart below, there were periods where IGOV outperformed GIM.

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