Alliance Trust is facing a new battle over strategy and governance after Elliott Advisors – part of an activist New York hedge fund – called for the appointment of three new directors to the board of the Scottish investment group.
Elliott, which owns 12% of Alliance’s stock, has written to fellow shareholders calling on them to back the election of three heavyweight business names as non-executives at the firm’s annual shareholding meeting on 29 April.
The fund said it had gone public with its demands after its attempts to discuss matters of corporate governance and business concern had “not been met with any meaningful response”.
Alliance, based in Dundee, has 50,000 private investors; many of them pensioners who rely on the investment trust’s dividend, which has increased every year for nearly half a century.
In its letter published yesterday, Elliott said the board changed its chairman and all but one non-executive director without any shareholder consultation.
It raised particular concerns about the replacement of Alliance’s head of equities, responsible for managing more than 95% of the company’s assets, through internal promotion without inviting external proposals or canvassing shareholders’ views. The letter also criticised Alliance for doubling administrative costs at a time when its peers had been reducing costs.
Elliott, which first became an Alliance shareholder in 2010, has put forward Anthony Brooke, a former executive at investment bank SG Warburg, Peter Chambers, a former chief executive of Legal & General Investment Management, and Rory Macnamara, a former corporate finance executive at Morgan Grenfell. It said the three men had been picked by a “reputable search firm”.
The hedge fund said a failure to consider alternative ideas from “world-class asset managers” was “symptomatic of broader corporate governance deficiencies and an unwillingness of the board to challenge the status quo”.
The push for board changes comes after what Elliott said was persistent underperformance of Alliance Trust’s investment portfolio, concerns about costs and losses at the trust’s operating subsidiaries.
“We believe that the board’s failure to address these concerns and fulfil the company’s full potential is indicative of a system of corporate governance which requires new impetus,” Elliott said in a statement to the stock exchange.
Although Elliott does not directly call for the Alliance Trust chief executive, Katherine Garrett-Cox, to go, the move is likely to pile fresh pressure on her after she survived an earlier shareholder rebellion in 2011.
Alliance Trust said its board would consider Elliott’s proposal “as it would any proposal made by a shareholder, and will respond in due course”. It urged shareholders “to take no action at this time”.
The trust didn’t comment directly on Elliott’s criticisms but sources close to the company said investors had enjoyed years of dividend and share price increases.
A spokesperson said: “Alliance Trust has strong corporate governance controls in place and has an effective and committed board of directors.”
The shares, which were changing hands at around 430p two years ago, rose 2.6% to 510p.
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