Investors call for changes at Alliance

ACTIVIST investor Laxey Partners renewed its calls for change at Alliance Trust yesterday, describing the board’s approach as a “poison pill” for its share price.

Laxey, which has a 1.3 per cent stake in the £2.5bn investment trust, has demanded the board reduce its persistently large share price discount to its net asset value.

Laxey wants it to set up a discount control mechanism (DCM) to trigger a share buyback to bolster the price if the discount rose above ten per cent.

“They stand out a mile as having a big discount,” said Laxey founder Colin Kingsnorth.

Isle of Man-based Laxey also called for reform of the voting system that calculates the voting position of members of Alliance Trust Savings (ATS), which holds 21.3 per cent of Alliance. The scheme proportionately scales up the responses of ATS members that vote to represent all potential votes. Laxey argues that this inflates the share of those that vote, which include Alliance’s board members, giving directors undue influence. “We believe the stock market views both the lack of a DCM and the share enfranchisement scheme as a ‘poison pill’ which is depressing the price of your shares,” said Laxey director Michael Haxby in the letters.

But Alliance chair Lesley Knox has said the board will narrow the discount by improving investment performance rather than buying stock.

Laxey has asked for a vote on the proposals at the AGM on 20 May.

ALLIANCE Trust’s share price discount to its net asset value (NAV) is now 16.5 per cent, far wider than peers such as RIT Capital Partners, trading at a 2.5 per cent premium, or F&C Investment Trust with a 9.7 per cent discount.

It means Laxey’s stake, valued at £37.05m by share price on 26 January, is worth £7m more in net asset value, at £44.03m. The two letters, to the board and shareholders, follow Laxey’s complaint on 10 November last year, which called for an open debate over discount controls. It was rejected by Alliance’s board.

“The board doesn’t think discount controls are in the best interests of all shareholders, but more to benefit short term investors,” sources familiar with Alliance told City A.M. “The board isn’t averse to share buybacks in any way but wants to take different factors into consideration too.”

Alliance, an industry heavyweight that was established in 1888, also dismisses the charge that its directors benefit from votes, saying the directors’ combined shareholdings made up less than one per cent of Alliance Trust Savings’ 21.3 per cent holding. However, Laxey contends that just 0.5 per cent of ATS investors vote, giving those that do a significant advantage.

Numis analyst Charles Cade said Alliance’s strategy to improve performance was showing signs of success and it was important to create demand for its shares in order to narrow its discount.

Laxey’s complaint is not the first time Alliance’s investors have queried its discount. In 2008, another investor, Troy Asset Management, built up a stake in Alliance and raised support among investors, but despite months of negotiations with the board was unsuccessful.