Alliance Trust said its largest shareholder’s attempt to get three new directors on the board “potentially threatens the very existence of the company”.
The Dundee-based investment trust urged shareholders to reject Elliott Advisors’ move, which it described as a damaging tender offer which concealed a dangerous agenda.
The US hedge fund, which has a 12% stake in Alliance Trust, fired the first shot in the battle when it called for three new non-executive directors to be appointed to drive performance.
AT responded that Anthony Brooke, Peter Chambers and Rory Macnamara cannot be considered independent as Elliott instructed the recruitment firm which found them. It called on shareholders to vote against Elliott’s resolutions.
It believed Elliott was attempting to exert undue influence on the board and had a short-term agenda that was against the interests of long-term shareholders in the 126-year-old investment company.
Elliott had repeatedly pressed the board to mount a tender offer to buy up to 40% of the shares in the £2.7 billion fund at a narrow discount to net asset value.
With Alliance Trust shares trading 14% below NAV, this would represent a significant uplift to investors who sold out, but could be hugely disruptive to AT and its remaining shareholders.
“The board considers that this type of action potentially threatens the very existence of the company, and rides roughshod over our long-term shareholders, our customers and our over 250 employees,” the trust said.
It claimed Elliott was opposed to the trust making dividend payments which it has successfully grown for 48 years even though a rising investment income was important to shareholders and contributed significantly to their total return.
AT said short-term shareholder returns had been in the top quartile since it switched to new managers with a sustainable investment policy six months ago.
Over one and five years its returns were above the median of other global investment trusts.
During Elliott’s four-year investment it had delivered a 66% total return compared to the 57% average in the global sector.
Since Katherine Garrett-Cox took over as chief executive in 2008, AT had generated a 92% return for shareholders, well above the sector average of 76%.
AT disputed the assertion that it had a bloated cost base, saying its ongoing annual charge had fallen to 0.6% last year from 0.75% in 2013, which again compared favourably with its rivals.
Its subsidiary businesses, Alliance Trust Savings, and its fund arm Alliance Trust Investments were both doing well and provided long-term growth opportunities for shareholders. There had been regular dialogue with Elliott, and AT had considered strengthening the board with a new non-executive this year.
AT chairman Karin Forseke said: “Elliott’s proposed resolutions are completely unacceptable.
“The board believes that they are a precursor for further disruptive actions from Elliott which are likely to focus solely on engineering an exit from their shareholding and would not be in the interests of all of our shareholders.”
Elliott’s move is the second of its type in three years. In 2012 Laxey Partners raised a resolution calling for the trust’s investment management to be outsourced, but the move was defeated.
Meanwhile, Elliott was surprised and disappointed at Alliance Trust’s defence, believing the three new independent non-executive directors are men of “experience, integrity and independent thinking”.
“We believe that this decision is indicative of a board that is out of touch with the concerns of its shareholders, and which needs fresh perspectives,” Elliott stated.
The largest shareholder said it was puzzled as to how the AT board reached its conclusion without meeting or speaking with the candidates.
Elliott had given the company prior notice of its intentions and stated its availability for discussions but said it did not receive a response.
Elliott rejected AT’s questioning of the independence of three individuals.
It went on to say that of the six independent non-executive directors appointed by AT since Elliott became shareholders, three have resigned ahead of serving a full three-year term, “which makes us question the effectiveness of the board’s own nomination process”.
Elliott claimed AT’s statement in defence of its stewardship of the trust includes factually incorrect assertions about proposals which it claims Elliott made.
“The proposed directors will, if elected, form their own view as to what is in the best interests of shareholders in a manner wholly independent of Elliott,” it stated.
“We urge all shareholders who agree with Elliott’s view that Alliance Trust requires fresh impetus at the board level to make their views known to the company.
“In the unfortunate event that the company does not reconsider, we urge all shareholders to vote for the resolutions electing Messrs Brooke, Chambers, and Macnamara to the board of our Alliance Trust,” it added.