European Smaller Cos Trust PLC on Wednesday warned that Saba Capital Ltd was seeking to ‘take control’ of the firm by restructuring the board.

The London-based investment firm focused on smaller European companies described Saba’s actions as ‘self-serving’ and ‘opportunistic’.

This adds to a growing outcry against the New York-based activist investor. Saba in December announced plans to shake up board leadership at seven investment firms in which it holds interest.

Saba on Tuesday raised its stake in ESCT to just over 29% from 28%. It has proposed two nominees for ESCT’s board.

ESCT rejected Saba’s implication of underperformance, saying total net asset value return in the past year was negative 0.9%, compared with the firm’s benchmark, the MSCI Europe (ex UK) Small Cap index, which was negative 1.1% in the same period.

European Smaller Cos shares were down 0.6% at 182.17 pence each on Wednesday morning in London.

The firm has convened a meeting to discuss Saba’s requisition and strongly recommended shareholders vote against it to ‘protect’ their investments.

‘The board also does not consider the two nominees to be independent, as one is a partner of Saba and the other has been selected by Saba, the largest shareholder in the company and the potential future investment manager,’ ESCT said.

If the resolution were to pass, ESCT warned Saba may replace investment manager Janus Henderson Investors with the Saba representative.

‘This could endanger shareholder protections, radically alter the company’s investment risk profile and deny investors the opportunity to benefit from the proven European small-cap investment strategy,’ Chair James Williams said.

‘Saba is counting on a high proportion of shareholders not voting. Investor participation is key and will determine the company’s future,’ ESCT added.

Addressing its share discount, ESCT noted it will introduce a three-yearly conditional tender offer to be paid if the total NAV return does not exceed the benchmark in each performance period. The offer is for up to 15% of capital at a price equal to the prevailing NAV per share, less 2% and less costs.

ESCT is targeting a mid-single-digit discount in normal market conditions, it said.

To that end the firm will continue an existing buyback scheme, but said it would avoid any action enabling a Saba takeover.

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