BlackRock Strikes Deal with Activist Hedge Fund to End Closed-End Fund Battle
In a major breakthrough, BlackRock Inc. has reached an agreement with Saba Capital Management, a prominent activist hedge fund, to resolve their long-standing dispute over dozens of closed-end funds. The deal marks a significant victory for Saba’s efforts to unlock value for investors in these funds, which had seen their share prices plummet far below the value of their underlying assets.
Repurchase Agreements and Standstill Deals
As part of the agreement, BlackRock has committed to repurchase a substantial chunk of shares in two of its largest closed-end funds, the $1.8 billion Innovation and Growth Term Trust (BIGZ) and the $1.7 billion Health Sciences Term Trust (BMEZ), at a price close to their net asset values. Specifically, BlackRock will repurchase 50% of outstanding shares in BIGZ and 40% of outstanding shares in BMEZ. Additionally, Saba has entered into standstill agreements with 48 other BlackRock funds, according to regulatory filings.
Tender Offers and Potential Gains
The two tender offers, priced at 99.5% of the funds’ net asset values, could potentially deliver more than $1.5 billion to shareholders, based on calculations by Bloomberg. This development is a significant win for investors, who had been stuck with losses due to the deep discounts at which these funds were trading.
Saba’s Crusade for Shareholder Value
Boaz Weinstein, founder of Saba Capital Management, has been a vocal advocate for unlocking value in closed-end funds. Over the years, Saba has invested billions of dollars in these funds, which were trading at a significant discount to their net asset values. Weinstein has argued that this anomaly harms investors and has pushed for reforms, including tender offers, to erase the gap between the funds’ market prices and their underlying values.
Background and Context
The dispute between Saba and BlackRock dates back to when the Federal Reserve was raising interest rates, causing investors to flee from income-producing assets like junk bonds, municipal debt, and dividend-paying stocks. As a result, the performance of these funds trailed market benchmarks, leading to significant losses for investors who sold their shares. Weinstein’s efforts have focused on pressuring asset managers like BlackRock to take steps to address this issue and unlock value for investors.
Global Expansion and Future Battles
Weinstein’s campaign is not limited to the US market. He is also targeting the UK’s investment-trust industry, seeking to seize control of several firms, including two trusts run by Janus Henderson Group Plc. This development sets the stage for a showdown in the UK market, as Weinstein’s playbook for unlocking value in closed-end funds gains traction globally.
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