BLK BlackRock Inc

By Gretchen Morgenson 

Saba Capital Management LP, a $1.7 billion hedge fund, will be allowed to nominate outsiders to the boards of two BlackRock Inc. closed-end funds.

The decision by Delaware Chancery Court comes after Saba filed a lawsuit against the world's largest asset manager last month. In Thursday's ruling, the court said that the BlackRock funds had overstepped their authority when they demanded extensive information about the dissidents' backgrounds ahead of the funds' annual meetings.

Saba, run by Boaz Weinstein, had alleged that BlackRock was trying to block outsiders from gaining board seats and effecting change at the BlackRock Credit Allocation Income Trust and BlackRock New York Municipal Bond Trust.

Saba also sued in Maryland over its holdings in the BlackRock Muni New York Intermediate Duration Fund. The court has yet to rule in that case.

When the suits were filed, BlackRock said Saba was trying to enrich itself at the expense of the funds' long-term shareholders. The annual meeting of the Credit Allocation Income trust is scheduled for July 8.

"This is a win for all shareholders and for board accountability," Mr. Weinstein said in a statement.

A BlackRock spokesman declined to comment on the Delaware ruling. BlackRock can appeal the decision before the July 8 meeting.

Closed-end funds, whose shares trade on exchanges, can sell at a discount to the value of the assets they hold, based on supply and demand. All three of the BlackRock funds have recently traded at discounts, although they have narrowed this month.

Saba is a big investor in closed-end funds, hoping to profit by narrowing their discounts and bringing share prices in line with the underlying assets' value. Strategies include agitating for governance changes among the funds such as converting them to open-ended portfolios or selling the underlying assets and returning money to shareholders.

In March, Saba announced it would nominate four candidates to one BlackRock fund board and supplied information regarding those candidates to be included in proxy materials. BlackRock demanded the nominees answer an additional 47-page questionnaire within five business days. After Saba missed the deadline, BlackRock said the nominations were invalid and votes for the dissidents wouldn't be counted. Saba then sued.

Delaware Chancery Court Vice Chancellor Morgan T. Zurn ruled with Saba on one of its allegations -- that BlackRock breached its bylaws when it demanded the additional information on the dissident directors to be delivered within five days. The court ruled that BlackRock defendants had exceeded the scope of the funds' bylaws by demanding the extra material and found that the questionnaire "was not 'reasonably requested' or 'necessary' " to determine whether Saba's nominees met requirements.

The court didn't decide on a Saba claim that the BlackRock questionnaire aimed to limit outsiders' ability to effect change at the funds' boards. The court left that matter open, saying that Saba hadn't presented enough proof.

Write to Gretchen Morgenson at gretchen.morgenson@wsj.com

(END) Dow Jones Newswires

June 28, 2019 13:08 ET (17:08 GMT)

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