ShareSoc has issued the following press release after talking to both representatives of Alliance Trust and Elliott Advisors. If you have any views on this matter please let us know, and we would particularly like to hear from any holders of Alliance Trust shares (for publication or privately if you prefer).
This is one company where private shareholders are in the majority but it will be interesting to see how many can and do vote. It may prove an interesting example of how the shareholder rights of those in nominees need to be improved which ShareSoc is running a campaign on at present. If you hold Alliance Trust shares, do make sure you vote at the forthcoming General Meeting.
Press Release: ShareSoc Comments on the Proposals for Alliance Trust
ShareSoc makes the following comments on the requisition to appoint three new non-executive directors to the board of Alliance Trust by Elliott Advisors. We do this from the stance of an independent not-for-profit organisation whose objective is to represent the interests of private shareholders.
Many of our members have an interest in investment trusts which generally provide a low cost and diversified way of investing in the stock market. But the issues that have arisen at this Trust such as long term underperformance and wide discounts of share price to net asset value are not uncommon. We are generally of the opinion that shareholders should demand action when such conditions persist, and that action might include the appointment of new directors so that a fresh view of the strategy of the company can be obtained.
Therefore, and ignoring the arguments about what has been exchanged in the past between the two parties involved, we think there are two key points to consider:
- The share price discount to Net Asset Value (NAV). On the 16th March the AIC (Association of Investment Companies) reported this as being 14.6% although it has subsequently narrowed no doubt because of the possibility of some changes arising from the Elliott campaign. We consider 14.6% too high for such a non-specialist trust.
- According to the AIC at the time of writing, the Share Price Total Return over one year for Alliance is 118.5 compared with the comparable sector performance of 118.9 – in other words below average. Over 3 years, 5 years and 10 years it is also below average. Although there was some improvement in the last year, this seems to have partly arisen from special circumstances related to their private equity and mineral rights investments. In essence the performance has been pedestrian for many years.
New Directors and their Independence
It would therefore seem perfectly sensible for a major investor in the trust such as Elliott Advisors (who have an interest in more than 12% we understand) to make some suggestions to the board of the company. Their nominations appear to be independent and of course under Company Law the nominees would only have to consider the interests of the Trust when acting as Directors.
Discount Control
ShareSoc is generally keen that investment trusts, particularly those on wide discounts to Net Asset Value, have a specific policy on how the discount is to be controlled. This can be via share buy-backs or tender offers for example. If Elliott Advisors have suggested a tender offer in the past then that is perfectly understandable and tender offers are one of our most preferred solutions because investors then have the option of accepting it or not. But with such “self managed” Trusts as Alliance there can be reluctance to downsize the company which tender offers and large market share buy-backs can imply. But it is what is in the interest of investors that matters, not the company management or the board.
Conclusion
In summary, we therefore think that shareholders in Alliance Trust should consider the proposed requisition very carefully and vote in favour of the proposed directors unless the Trust comes up with stronger arguments than they have to date. Their rejection of the proposals out of hand seems unwise and is unfortunately a typical response seen from boards who are reluctant to tackle the key issues when faced by criticism from outside.
ShareSoc Deputy Chairman Roger Lawson had this to say on the matter: “I think there are good causes for concern about this Trust and it is perfectly reasonable for Elliott Advisors to take up their worries with Alliance and propose directors if they feel the issues they have raised are not being dealt with. Requisitioning resolutions is simple democracy upon which shareholders can make their own minds up and the initial and rapid response from Alliance has been less than temperate“.
Full information on the background to the requisition from Elliott Advisors is provided on their dedicated web site here: www.improvealliancetrust.com
Roger Lawson
I am afraid I completely disagree. I do not think it is for you,me or anyone else to decide what the “correct” price of any share is. Supply and demand determines the price.
If I owned Alliance Trust shares which I do,I might try it on as are Elliot.
What Elliot want is for Alliance to be cajoled into buying them out,which will only be good for Elliot.
Hopefully,Alliance will continue to ignore Elliot.
If Elliot is really serious about reducing the discount then it can put it’s money where it’s mouth is and mount a full scale take over.It has the resources
Re the previous comment, we are not saying what the “correct” price should be – simply that it is wise in investment trusts to have a discount control policy and that the discount should not be too wide. Particularly in the case of Alliance Trust, many of the shares are held by elderly investors and sometimes they (or their executors) have to realise the value by selling shares. If the discount is wide, or bounces up or down, then they can be disadvantaged. I certainly don’t like wide discounts in the investment trusts I personally hold.
Roger Lawson
Not quite,I agree but you are saying that the share price should be other than what it is. If the discount is wide,or bounces up and down we can all be disadvantaged or advantaged. Presumably,the shares were at a discount when they were bought,too.
I personally would only buy investment trusts at discounts,but don’t like it when the discount widens further!
I still do not think that investment trusts should manipulate their share prices,especially not for the benefit of large,noisy shareholders pretending to be on the side of other shareholders.