Mercury trust fights pounds 1bn break-up threat

A pounds 1BN break-up bid by a US investor has been rejected by the Mercury European Privatisation Investment Trust (Mepit), ahead of a vote at the trust's annual meeting next month.

Executives from Elliott Associates, a New York investment company headed by Paul Singer, met Mepit's managers last week and urged them to wind up the trust. Mepit received a demand that this be put formally to shareholders from solicitors acting for more than 5 per cent of the trust's shares, held via four nominee names.

Earlier this month two US partnerships - Westgate International and Liverpool - spent pounds 27m on a 3.48 per cent stake in Mepit. According to recent filings with the US Securities and Exchange Commission, Mr Singer is also president of Westgate International.

Mepit, with a market capitalisation of pounds 840m, is one of the biggest investment trusts on the market, with 34,000 private investors. The trust was launched in March 1994, intended to cash in on the wave of privatisations across Europe. Kleinwort Benson, which launched a similar trust, broke it up and handed the cash back to shareholders in 1997 after an investor revolt.

Mercury Asset Management, now owned by Merrill Lynch, is keen to avoid this. Mepit's net asset value has gained 126 per cent, and the return to shareholders has been 86 per cent.

After a recently disappointing performance, the trust's managers opted to ask shareholders to vote in favour of broadening the range of investments the trust can make to cover European growth stocks as well as pure privatisations. It plans to change its name to the Mercury European Investment Trust.

Mepit has also bought back shares. It will ask shareholders to approve another 15 per cent buyback at the June 29 annual meeting. It is thought Elliott will put forward a competing break-up plan which would involve giving shareholders a choice of cash, securities, or shares in a new and smaller trust.