Alliance Trust and RIT Capital

Several newspapers reported this morning that Alliance Trust (ATST) has been approached by RIT Capital Partners (RCP) about a possible merger. Both companies are listed investment trusts favoured by private investors. Alliance Trust has been going through some difficult times of late after a period of poor relative performance resulting in a high discount to net asset value (currently over 10% according to the AIC despite an active share buy-back programme whereas RCP is on a 6% premium at the time of writing). This caused an attack by Elliott Advisors and a campaign by ShareSoc to promote the interests of private investors in ATST (see http://www.sharesoc.org/alliance.html  for more background).

These actions resulted in very substantial changes at Alliance Trust including a complete change of board members and the departure of the high profile CEO Katherine Garrett-Cox. It still left some problems unresolved such as what to do with the two subsidiaries Alliance Trust Investments and Alliance Trust Savings which appeared to be “non-core” to investors in the Trust and which have consistently lost money in the past.

Neither Alliance Trust nor RIT Capital have been available for comment, but a merger with another trust might surely make sense. Alliance Trust has been shrinking in size because of the share buy-backs and the lack of new investors meant that the discount was likely to persist for some time. Mergers of investment trusts can of course reduce overall costs as administration and investment management costs are spread over a larger asset base.

Whether it would be attractive to the shareholders in RIT Capital (in which Lord Rothschild, the Chairman, and his family are significant investors) very much depends on the terms for the merger and the future board representation – Lord Rothschild is aged 80 with no obvious successor.

Other news from Alliance last week was the appointment of Clare Dobie to the board. This restores some female representation on the board which was previously dominated by ladies. Clare had an initial career in financial journalism and was City Editor of The Independent for a time. More recently she has sat on the boards of other investment trusts and hence appears well qualified for the role.

Roger Lawson

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3 thoughts on “Alliance Trust and RIT Capital

  1. I find it hard to see much advantage for either side, other than RCP perhaps getting assets at a discount and that it would probably put them into the FTSE 100. The strategy and portfolios of the two trusts are completely different. I wouldn’t have thought the succession would be an issue as far as the management of RCP goes, but I suppose his heirs might have a different view on the direction they want it to take.

    • Hi Stephen,

      The (short-term) advantage for ATST shareholders is that RCP could make an offer, in shares, at a premium to the current ATST share price, generating an immediate paper return. If this offer were still at a discount to ATST NAV (say a 5% premium to the current share price but 5% discount to NAV), this would be NAV/share accretive to RCP shareholders.

      Longer term, RCP’s strategy has produced superior returns. Roger’s point about succession planning is, however, significant, as I understand from a former insider at RCP that his management was very much “hands on” – though from recent ARs & attending recent AGMs, may have become less so of late, with a view to that succession planning.

      Best,
      Mark Bentley

      • I’m not sure that a 5% turn (less all the costs) is worth the effort for either side – if they wanted to plat that game there are trusts on bigger discounts they could go for. Perhaps RCP sees unrecognised value in ATS? I can well believe that Lord R has been hands-on when it comes to strategy, but the asset management has always been contracted out to a variety of people and companies. Anyway they’ll presumably have to give a more detailed rationale if they take it further.

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