Activist Investor Elliott Seeks To Shake Up Alliance Trust

Mar 16 2015 | 9:38am ET

By Nishant Kumar and Sinead Cruise (Reuters) - Activist investor Elliott Advisors, the largest individual shareholder in Alliance Trust <ATST.L>, is seeking support from fellow shareholders for a boardroom shake-up at one of Britain's oldest listed investment companies.

Elliott, which owns 12 percent of the investment trust, said in a statement it has nominated three new independent non-executive directors ahead of the company's annual general meeting on April 29.

"This initiative is the culmination of a process where we had sought to engage with the company on matters of corporate governance and business concern, but where we have not been met with any meaningful response," Elliott said.

The U.S. investment firm, which is Argentina's main hold-out creditor and is also famous for agitating for change at various companies in the past, including Actelion <ATLN.VX>, Telecom Italia <TLIT.MI> and Hess <HES.N>.

Elliott said its key concerns included a "persistent underperformance" of Alliance Trust's investment portfolio against peers and relevant benchmarks, the costs of its investment management function and continued losses in its two operating subsidiaries.

Alliance Trust, founded 126 years ago and based in Dundee, Scotland, is structured as an investment trust, a listed company running a global portfolio of investments. As a result, the company's shares are prone to trading at a discount to the net asset value of its investments.

Elliott believes poor corporate governance and weak cost controls are largely to blame for a relatively wide discount of around 12 percent to its net asset value of some 3.2 billion pounds ($4.7 billion), according to the company's latest data.

The shares were trading up 1.7 percent at 504.5 pence by 1053 GMT on Monday.

In reaction to Elliott's statement a spokesman for Alliance Trust said it had "strong corporate governance controls in place and an effective and committed board of directors" who remained "entirely focused" on acting in the best interests of shareholders over the long term.

Governance

Elliott, which became a shareholder in 2010, has objected to the replacement of the Trust's head of equities with an internal candidate, a source involved in Elliott's campaign said.

The firm has nominated Anthony Brooke, a former S.G Warburg executive, Peter Chambers, former chief executive of Legal & General Investment Management and asset management consultant Rory Macnamara as new directors, "to safeguard future communications with investors".

The source said Elliott has no plans to challenge the positions of Chairwoman Karin Forseke or Chief Executive Katherine Garrett-Cox.

Garrett-Cox has led Alliance since 2007, having held top roles at Aviva <AV.L> and Aberdeen Asset Management <ADN.L>. She also joined the supervisory board of Deutsche Bank <DBKGn.DE> in 2011.

Alliance Trust, which has proved popular with income-seeking retail investors for its dividend growth policy increased the total payout last year by 14.3 percent to 12.4 pence, the 48th straight year of growth, and bought back 6.7 million shares in a bid to close the discount.

But Elliott is only the latest of several dissident investors to demand improvements in shareholder value.

In 2011 Laxey Partners requisitioned a vote on a proposal to introduce a Discount Shareholder Mechanism designed to prevent shares from falling below net asset value. In 2012 Martin Gilbert, the chief executive of another shareholder, Aberdeen Asset Management, was quoted in media reports as saying his company would be interested in taking over the management of Alliance's investments from its in-house team.

However, activists have struggled to force changes at Alliance because of the sheer number of shareholders, with some 70 percent of the Trust's shares owned by individual retail investors.


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