Alliance Trust has entered an agreement with its largest investor, activist hedge fund Elliott Advisors, to buy back all of its nearly 20 per cent shares in the firm.
Elliott currently has a disclosable interest of 19.75 per cent in the company, after the US hedge fund called for the trust’s restructure in 2015.
Alliance has already repurchased 30.5 million shares, or 6 per cent of its shares, which has halved the trust’s discount to net asset value to a new low of 5 per cent.
The repurchase of shares, which needs shareholder approval, will be taken in five equal portions, each at a 4.75 per cent discount to the then prevailing NAV, the firm says in a trading statement.
Alliance Trust’s board says: “The board believes the proposed repurchase is in the best interests of the company and its shareholders as a whole, having regard in particular to the uplift to NAV of approximately 1 per cent, which will accrue to the benefit of continuing shareholders; the ability for the company to move forward with its multi-manager proposal against the backdrop of a share register that is settled and supportive for the longer term; and the fact the targeted annual costs of the ongoing company will remain competitive, amounting to no more than 65bps.
“Furthermore, the board reaffirms its proactive approach to buy back shares, and going forward is prepared to do so at or around that same level.
“For these reasons, the board intends to recommend unanimously that shareholders vote in favour of the requisite resolutions to be put before the company’s shareholders to implement these proposals.”
QuotedData senior analyst Matthew Read saysthe repurchase is “helpful” in that it removes a clear overhang in Alliance Trust’s stock but argues Elliot is getting “preferential treatment” saying an offer where all shareholders could participate would have been “fairer”.
He says: “By allowing Elliott out at a discount close to where the trust is trading, they’re not being given much of an advantage to which other shareholders don’t have access. Elliott get the benefit of certainty around an exit and remaining shareholders get a c 1 per cent uplift in NAV so everyone benefits.
“However, I like all shareholders to be treated equally and whilst the board say that it intends to continue making repurchases at around this 4.75 per cent discount level, I do not see a provision that allows other shareholders to exit at the current time.
“I can understand why the board has not done this. For continuing shareholders, it is better for the trust to retain scale and keep its ongoing charges competitive. The board says that even with the reduction, they will be able to keep Alliance Trust’s ongoing charges to below 65bps however it stands to reason that shrinking the fund by 20 per cent will push these up from where they might otherwise have been.”