ShareSoc Comments on the Proposals for Alliance Trust

PRESS RELEASE 64 (24/3/2015)

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:

1. 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.  

2. 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“. 

For further information, please contact:

Roger Lawson
Deputy Chairman, ShareSoc
Telephone: 020-8467-2686  

Postscript: A fuller analysis of the case for change at Alliance Trust, and the defence notes issued by Alliance Trust, is given in this document: ShareSoc_Alliance_Trust_Analysis which was issued on the 2nd April. 

Note: a web page has been set up on which shareholders in Alliance Trust can register their interest in the company and receive further information from the Alliance Trust Shareholders Action Group – see www.sharesoc.org/alliance.html

Post Date: March 24, 2015

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.