The recent travails at Alliance Trust have been well reported, as has the growing prominence of Elliot Advisors within the trust, following its moves to secure board changes over the past 12 months or so.
As Numis Securities pointed out, in a note out on Tuesday following the confirmation by both boards that talks were ongoing: “Elliott Advisor’s commitment to a 12 month cease fire came to an end following Alliance Trust’s AGM on 6 May, paving the way for renewed corporate action”.
It was, however, surprised that RIT was the first group to make a move. This is because, it explained, takeovers are often difficult to achieve as “merger proposals are often met by a hostile defence from the incumbent Board which seeks to find a white knight alternative”.
But, as it points out, because of the recent board changes at Alliance Trust, including the departure of Chairman Karin Forseke and CEO, Katherine Garrett-Cox, there is likely to be less resistance than there might have been. “Nevertheless,” it added, “a merger between the two funds would require a significant number of existing direct directors to stand down: Alliance Trust has six directors and RIT Capital nine, including three non-independent directors.”
Charles Stanley investment analyst Stephen Peters agreed that such an announcement wasn’t too surprising as, while it has a 16% stake in the trust, Elliot is not a natural long-term shareholder, “At some point it will want its money back to invest elsewhere – the group is happy to admit that their interest in Alliance Trust came about because it could not, post financial crisis, find more interesting opportunities elsewhere.”
He said a merger with a vehicle that is already at critical mass and that is well-known and well respected would allow Elliott and other shareholders to leave if they wished, but that others could remain invested in a well-managed fund. But, there are other issues to consider.