Aggressive arbitrageur Sierra Trading has been bought out by the Scottish Investment Trust at a cost of over £35 million and Foreign & Colonial is believed to be in the process of repurchasing its stake at present.
The independently managed £1.5 billion Scottish investment trust bought back 7.96 million shares from the arbitrageur at 458p per share earlier today for almost £36.5 million.
In mid-December Sierra requested the trust’s board offer its shareholders the right to vote for a tender offer of up to 70% of the trust’s shares at a 2% discount to its net asset value.
The deal today was struck at a discount of slightly under 10% and the vote will no longer go ahead following this repurchase. It has enhanced the NAV of the remaining shareholders marginally also, although the board has not specified the extent of the benefit to ongoing shareholders.
Earlier this week the Bankers investment trust bought out Sierra at a discount of about 10% also and market observers told Citywire the giant Foreign & Colonial investment trust has started to buy back Sierra’s stake in the trust using Tradepoint, the alternative market to the London Stock Exchange.
It is now expected Sierra will shortly sell its stake in Murray International , the fourth large international trust it has forced to put forward a proposal for a tender offer. These sales mean the arbitrageur will have over £100 million in cash, which it may use to renew attacks elsewhere in the investment trust industry.
A spokesman for the Scottish investment trust said it will continue to market its shares and try to increase the number of private investors who support the fund.
Alan Ray, an investment trust analyst at Credit Lyonnais Securities Europe, said: ‘It seems a line has been drawn in the sand at about 10% - Sierra seems happy to sell at this level.
‘I think these deals show Sierra was just sabre-rattling with their demands [for tender offers at a 2% discount]. I think they may look for new opportunities in closed-end funds but the large generalist trusts are not natural targets and I expect they will look elsewhere.’
Scottish Investment Trust’s share trade at 456.5p, up 10p today, on a discount of about 10% compared to a 15% average over the last 12 months.