David Prosser: Alliance prepares to face its tormentor

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Outlook The day of reckoning is fast approaching for Alliance Trust and its highly regarded boss, Katherine Garrett-Cox. Laxey Partners, its dissident shareholder, yesterday won the backing of two corporate governance groups for its campaign to force Alliance to implement an automatic discount- control mechanism.

Broadly, what Laxey wants is for Alliance to be forced to take action every time its shares trade at a discount of more than 10 per cent to the value of its assets. Since the average discount at Alliance over the past five years has been 16 per cent, this is an urgent need, it says.

The vote on its proposal takes place on Friday next week, with Pirc and ISS yesterday advising shareholders to back Laxey. Alliance – which wants to retain the right to intervene only when it sees fit – says it is confident of winning the day.

Still, even it is proved right, Laxey's strategy has already had some success. This year Alliance has conducted several sharebuybacks, the most obvious way to attack the discount, having previously done so only rarely. Ms Garrett-Cox says she would have bought back shares even without Laxey's campaign, but it doesn't really matter – the point is that the activist investor is already beginning to get its way.

Is that enough? There is no arguing with Ms Garrett-Cox's insistence that the best way to bring in the discount is to improve investment performance. But shareholders have had a long wait. With the discount remaining stubbornly high they are entitled to ask for a more formulaic approach to getting it down – Laxey and its supporters have a strong case.

Either way, this is not a parochial matter of interest only to the parties involved. What happens at Alliance matters because the investment trust is a role model for the rest of the sector. It remains the largest and was, until the last reclassification, a member of the FTSE 100.

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