Activist investor Laxey Partners’ calls for change at Alliance Trust gained fresh backing today after it published a new report attacking the trust’s underperforming share price.
Shareholder advice agency the UK Individual Shareholder Society has recommended its members support Laxey’s stance and vote for two of Laxey's resolutions against Alliance Trust at the upcoming 20 May annual general meeting.
ShareSoc said it believed Alliance Trust’s persistent gap between its share price and net asset value, a discount currently resting between 15 and 20 per cent, was not in shareholders’ interests.
It said that in the absence of a plan to tackle the discount from the trust, Laxey’s proposal to impose a formal discount control mechanism that would use share buybacks to boost the share price was “a reasonable approach”.
“The original letter to the board in November 2010 by Laxey Partners quite rightly raised a number of questions that required tackling,” said ShareSoc chairman Roger Lawson.
“The response from the board seems to have been that they feel that no change was required, and they have not apparently entered into a meaningful dialogue. This is not a reasonable way for boards to respond to the concerns of any shareholders, whether short or long term holders.”
Laxey has also published an independent analysis of the reasons for the discount.
It earlier criticised the level of expenses incurred by the trust, arguing that subsidising loss-making subsidiaries had pushed its total expense ratio far higher than peers – and that the board was avoiding a prolonged share buyback process to disguise the soaring expenses.
Today’s report, produced by fund research firm Fund Consultants LLC, concluded that the share price discount was a product of over-supply of shares and that improving the trust’s performance alone would not reduce it.
“We believe the increased supply of Alliance shares was a significant factor in the widening discount,”
The report said the discount had existed for years and had been exacerbated by the issue of 167.9m new shares when Alliance merged its mortgage and savings companies in 2006 – but said share buybacks could and would directly improve the discount in both the long and short term.
The report also concluded that the total expense ratio had been significantly understated and had increased dramatically since the merger.
“Rather than being one of the least expensively run funds, Alliance is actually one the most expensive,” it said.