Analysts spot hidden merits to Alliance Trust merger

Analysts spot hidden merits to Alliance Trust merger

Investment trust analysts have said there are more merits than first apparent in a tie-up between Alliance Trust and RIT Capital Partners as the two trusts begin merger discussions.

The companies have confirmed discussions over a possible combination following RIT majority shareholder Lord Rothschild’s approach to Alliance Trust earlier this year, sparking a fresh wave of speculation over the Dundee-based firm’s future.

A merger would combine the multi-asset RIT with a global equity trust which has both asset management and investment platform subsidiaries, leading to Stifel’s Iain Scouller to describe the talks as “a surprise move [involving] two very different investment propositions”.

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But Winterflood head of research Simon Elliott said an agreement would have “much to commend it” and suggested RIT would be willing to take on the two subsidiaries in the event of a deal.

“[RIT] has shown that it is prepared to invest in fund management companies. The most recent example is GVQ Investment Management, manager of Strategic Equity Capital,” Mr Elliott said.

“Similarly we suspect it would be an excellent parent of Alliance Trust Savings given [its]experience in developing businesses such as St James’s Place.”

Charles Stanley investment trust analyst Stephen Peters, noting that Alliance Trust once considered adopting a multi-asset focus similar to that favoured by RIT, said a combination may find favour with investors.

“It might be attractive to argue that outsourcing management of Alliance Trust – like Witan [has] successfully achieved in recent years – would be a better option...however this solution does not address the bigger question of what investment outcome investors want.”

Mr Peters said critics of the two trusts’ performance overlooked the fact that RIT has a focus on preserving capital.

“The rise of open-ended multi-asset funds such as Gars shows that multi-asset funds have a role. Investors value the ability of actively managed, diversified funds such as RIT to ‘win by not losing’, which as its very long track record demonstrates, works well.”

Takeover code rules mean RIT must walk away from a deal if it does not make an offer by June 27.

Alliance Trust said it would incorporate any concrete proposal into its ongoing strategic review, part of an overhaul first begun 12 months ago following pressure from activist shareholder Elliott Advisors, a hedge fund.

Alliance now has a fully independent board following the departure of former chair Karin Forseke and former chief executive Katherine Garrett-Cox in the aftermath of the hedge fund’s successful campaign, a development which would theoretically make it more willing to listen to offers.

RIT, for its part, said a possible merger was at “a very preliminary stage of consideration”.

The uncertainty has led to speculation of interest from elsewhere. Alliance Trust will “inevitably receive interest from managers who are willing to run the portfolio with far lower charges”, Charles Cade at Numis said. Mr Scouller suggested equity-focused trusts may approach the Dundee firm.