Katherine Garrett-Cox launches war of of words on rebel investors

ALLIANCE Trust yesterday mounted its own offensive in the increasingly bitter battle with activist investors, accusing ringleader Laxey Partners of peddling "inaccurate, false and frankly misleading information".

Chief executive Katherine Garrett-Cox entered into a war of words as the Dundee-based investment trust unveiled full-year results, showing a solid 16.2 per cent increase in net asset value per share and a total shareholder return of 19.2 per cent.

She said the trust intended to "come out fighting" ahead of what is expected to be a fiery annual general meeting (AGM) next month, where Laxey is seeking to force Alliance into adopting a regular share buy-back policy.

The shareholder has long argued that the trust should establish a so-called discount control mechanism that automatically triggers a buy-back when the share discount hits a certain level to net asset value.

Alliance's discount, which stood at 17.1 per cent at the close of its financial year, has long been a bone of contention, and Laxey hopes to force the issue at next month's meeting.

At the weekend, it further fuelled the war of attrition accusing the trust, the largest of its kind in Britain, of misleading investors over administration costs.

Although the Isle of Man-based investor only accounts for 1.7 per cent of Alliance stock, it claims a total of 13 per cent of shares are held by activists.

Eyebrows were raised in the City when earlier this month US hedge fund Elliott International, which has a reputation for breaking up investment trusts, took a 3 per cent stake. Elliott is widely tipped to back Laxey at the AGM.

But Garrett-Cox yesterday told The Scotsman that she had no intention of giving in to hedge funds that "are only focused on themselves and are only interested in the short term".

She said the trust was focused on serving its core shareholder base of long-serving, private investors who are more interested in long-term performance.

"I fundamentally oppose a rigid discount control mechanism because it's just not in the interests of our long-term shareholders and it's them we have to look after," she said.

But Alliance yesterday acquiesced on another point of contention, announcing that it would abolish a "scaling up" or block voting system, which, it has been alleged, works to the benefit of management.

Garrett-Cox insisted, however, that she was not offering her critics an olive branch.

"Absolutely not," she said. "Let me be absolutely clear that scaling up is an irrelevance, so effectively we are taking it off the table.People have got quite exercised about something that just has never made a difference."

She described the results for the year to 31 January as "strong" and said the trust was now ranked "median" against its peer group.

The firm yesterday recommended a 3 per cent increase in the full-year dividend to 8.395p. It has already paid three interim dividends of 2.0625p and has declared a fourth interim dividend of 2.2075p payable on 3 May.

Analysts described the results as "reasonable" but said they delivered few surprises.

Simon Elliott of Winterflood Securities said the company "still had some way to go". While the discount had improved - it stood at 15 per cent yesterday - it was still above the average of its peer group, which was about 8 per cent.

He added that the performance figures were "not bad" but there was still plenty of room for improvement. "They are middle of the pack now," he said.

Alliance has been accused by its critics of performing well in a falling market but underperforming in a rising market.

The firm said in a statement that over its past three financial years its total shareholder return of 16.9 per cent compared with a FTSE All-World total return of 23.2 per cent and a FTSE All-Share total return of 13.7 per cent. But few in the City expect that the results will silence the company's critics.

A spokesman for Laxey Partners declined to comment but Charles Stanley analyst Stephen Peters said: "They are running out of ways to pacify shareholders. My analysis suggests their dividend growth is some way behind that of some of their peers."

Most in the City don't expect Laxey to succeed at next month's AGM but Peters warned that the problem is unlikely to disappear.

"My understanding is that Laxey has got no intention of going away," he said.

There are rumours that other aggressive hedge funds are also circling the company.

Shares in Alliance Trust closed down 3.7p at 371.4p.