Job fears eased as Alliance sees off merger approach

Charles Cade, of analyst Numis Securities, signalled a view that a merger or takeover was now unlikely in the short term and Alliance was most likely to continue with its current management arrangements after its review. He noted the appointment of external managers to run the trust, a move which would still preserve the Alliance Trust identity, was another option.

Mr Cade said: “I’m sure the RIT approach certainly will have flushed out a number of groups who will be interested in a mandate of that size. Clearly, they’d have to look at other options as well to provide an exit for [shareholder] Elliott [Advisors] at some stage, potentially, as part of any changes.

“The strategic review will clearly be looking at the options, the most likely being continuing with the current strategy or whether to consider one or more other managers and pass some or all of the assets over to them.”

Alliance has been seeking to cut costs, improve value for shareholders and reduce the discount at which its share price trades to net asset value (NAV) – a key measure of performance – since activist investor Elliott Advisors forced a board clear-out in October.

The campaign by Elliott, which currently has a 10.27 per cent stake in Alliance, led to the removal of chairman Karin Forseke.

That was closely followed by the departure of chief executive Katherine Garrett-Cox. The board, now chaired by Lord Smith of Kelvin, said progress has been made on those fronts since, with the discount having been cut from more than 12.5 per cent last year to about 10 per cent (including income).

But it has since appointed Canaccord Genuity to undertake a fresh review to look at unlocking further shareholder value. That review was announced just days after RIT’s informal approach.

Mr Cade added: “They need to find a solution, really, to narrow the discount and to provide an exit for Elliott. To me that means some form of change is probably the most likely outcome.”

Alliance said: “The board of Alliance Trust is implementing a series of changes to enhance shareholder value, as set out in its announcement on 1 October 2015.

“This process is well under way and has already started to make good progress, lowering costs, narrowing the discount and allowing for the creation of a fully independent board of directors. In light of this the board will continue to suspend share buybacks until it has concluded on its strategic review.”

A merger between RIT Capital Partners and Alliance would have created a £5 billion investment trust. Based on last night’s closing price, Alliance has a market capitalisation of about £2.6bn, while RIT was worth nearly £2.5bn.

Analysts said they could see both benefits and pitfalls to the potential deal. One attraction was said to be the premium at which RIT’s shares trade versus its NAV, in contrast to the discount at which Alliance shares trade to its NAV. But RIT said it had decided not to proceed with an offer following “careful analysis and constructive discussions with representatives of Alliance Trust”.

It is understood the complexity of the Alliance structure, added to the different investment approaches taken by the two trusts, led RIT to conclude a deal would not work.

RIT said in a statement: “The board of RIT respects the process which Alliance Trust are going through and wishes them well with their strategic review.”

The SNP leadership had been watching developments closely amid concern that a deal could ultimately lead to hundreds of financial services jobs being lost to Dundee.

Dundee East MP Stewart Hosie said: “I very much hope that there can now be long-term certainty for Alliance Trust in Dundee and that the maximum number of jobs are protected for the future.”