Laxey steps up pressure on Alliance

LAXEY Partners, the activist investor trying to force change at Alliance Trust, has raised the prospect of a boardroom reshuffle at the 123-year-old Dundee firm if the current management fails to appease shareholders concerned over the firm's share discount.

• Colin Kingsnorth

Isle of Man-based Laxey, which holds a 1.7 per cent stake in the investment trust, has upped its campaign to coerce Alliance chief executive Katherine Garrett-Cox to agree an automatic share buyback policy - or discount control mechanism (DCM) - ahead of a crucial vote next month.

Although analysts believe Laxey's supporter base is too small to win the vote at Alliance's annual general meeting on 20 May, Colin Kingsnorth, chief executive of the rebel investor, claims there are "many" other investment groups keeping an eye on the situation.

If shareholder discontent with the current board's strategy turns out to be sizeable at the meeting in Dundee, Kingsnorth claims other activists are likely to enter the fray and demand changes at the top.

Although he insists Laxey's motivation is only to force the adoption of a DCM, Kingsnorth argues that other groups circling Alliance are likely to have more radical ideas - including a potential boardroom shake-up.

He told Scotland on Sunday: "If there is a large amount of dissatisfaction with them (the board] - then that opens up the possibility for other management groups to throw their hats in the ring to come in to manage Alliance Trust.

"There are many investment groups out there watching this with keen interest. If there is a big vote against the management they most certainly will say: 'Have a management contract with us, we are better-performing.'

"They (the board] have underestimated the issue."Whether Alliance wins or loses, a big anti vote will see other management groups look at it and say: 'Why don't we give them an alternative'."

Alliance last week scored a major coup when it landed the public backing of Brewin Dolphin on its share buyback stance, but some analysts have accused the trust of "complacency" over its discount.

They point out that several former shareholders in Alliance, including publisher DC Thomson and the Personal Assets Trust, "voted with their feet" after the board refused to take action on previous occasions to close the massive discount between the value of the trust's assets and its shares.

Several in the City have warned that the activists "will not go away" even if Alliance's board does secure victory at the AGM, and speculation is mounting that Elliott International, which recently seized a 3 per cent stake, could up its holding and force an extraordinary general meeting.

Elliott, which comes with its own reputation for forcing change in the global investment trust industry, is understood to have "very deep pockets", although it is yet to reveal its hand on how it will vote on the DCM.

Stephen Peters, investment trust analyst with Charles Stanley, argues that some of the more "sophisticated" shareholders are likely to side with Laxey on an automatic share buyback policy. He has also questioned the trust's div-idend growth, warning it was "running out of ways in which to pacify shareholders".

But others point out that the activists have already made money on Alliance, as the trust has bought 15 million shares since Laxey's arrival in 2009.

No one was available to comment from Alliance Trust.