Laxey raises stakes in battle with Alliance

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The Independent Online

Laxey Partners, the activist investor, stepped up the pressure on Alliance Trust yesterday by accusing the £2.4bn investment trust of operating a "poison pill" that depresses its share price.

It wrote yesterday to both shareholders and the trust's board demanding immediate action. Michael Haxby, a director, also warned that Laxey would view a failure to accede to its demands as "a breach by the board of its duties to us and the other Alliance Trust shareholders and accordingly we reserve all our rights to take further action in respect of any damage we suffer as a result of any such breach".

The hedge fund is calling on Alliance to bring in a "discount control mechanism" to narrow the gap between the price at which Alliance shares trade and the value of its underlying investments.

Such a mechanism would see action taken – usually by the company stepping in to the market to buy back its own shares – whenever the discount went above a certain level, typically 10 per cent. It currently stands at around 17 per cent. Laxey argues that many other trusts, including Foreign & Colonial, have successfully introduced such measures to the benefit of their investors.

Laxey is also calling for changes to the Alliance Trust Savings Scheme shareholder enfranchisement plan. This allows many small shareholders who hold the investment through savings plans, often sold through independent financial advisers, to vote on company resolutions.

The plan accounts for 21 per cent of votes in total and even if a relatively small number of shareholders vote one way on a resolution (and they are in the majority) the entire 21 per cent is voted in the same way.

Laxey described that situation as "deeply unfair" and claimed it gave directors, some of whom hold shares through the plan, an unfair influence over votes.

It said the combination of the two amounted to a "poison pill". Laxey, with 1.4 per cent of Alliance's shares, wants its letter to go out with the company's shareholder circular ahead of the annual meeting this year.

Laxey has been active in the investment trust sector for several years now and has launched similar attacks on a number of other trusts.

It has set up a website for disgruntled shareholders and has requisitioned motions designed to shake up the trust for the forthcoming annual meeting.

Alliance is notable for being managed by Katherine Garrett-Cox, the fund manager who has been nicknamed "Katherine the Great" for her past investment performance.

Alliance declined to comment yesterday. However, the trust is expected to set out its formal position in the shareholder circular, which will be sent out in April, and is unlikely to take action before then.

Alliance is expected to repeat recent arguments that a discount control mechanism using share buybacks advantages short-term shareholders – who sell into them at a profit – rather than long-term holders who wish to retain their investments in the trust.

Alliance has used share buybacks twice in the past year but believes that directors should have the flexibility to carry them out at times which in their view are in the best interests of all shareholders rather than being forced to act by a formal discount control mechanism.

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