Jim Armitage: For a vulture, Elliott deserves praise over Alliance shake-upComments Off on Jim Armitage: For a vulture, Elliott deserves praise over Alliance shake-up
And so the Celtic saga of Alliance Trust draws closer to its end.
Elliott, the all-powerful hedge fund famed for taking on entire governments, is near to chalking up another victory.
It was way back in 2010 when Elliott first spotted the gaping hole between the value of Alliance’s assets and its share price.
The US activist looked beyond the laurels (and pay cheques) awarded Alliance’s leader Katherine Garrett-Cox, and decided there was money to be made.
Painting a picture of a business primarily run for the benefit of its managers rather than shareholders and investors, it set about removing the chiefs and dismantling the failing business model brick by Dundee brick.
Key to Alliance’s faults, in Elliott’s view, was the way it actively managed funds with its own team. Far better, and more cost effective, to contract out to a cheaper giant such as Blackrock.
Today, after years of cajoling and agitating, it finally got its way. Mostly.
Investment management will be outsourced not to one, but a panel of eight managers, and an aggressive programme of share buybacks will be launched.
The deal isn’t sealed yet, though. There’s no guarantee shareholders will approve it, and we still don’t have details on who the new managers are or what they’ll charge. Hence the muted share price reaction.
But since Elliott started buying Alliance shares at around 350p six years ago, they’ve gained to 609p, and the discount between the share price and the value of its assets, or NAV, has halved from 16% to nearer 8%.
By the laws of physics, the new share buyback programme should trim that discount further.
That’s only a paper profit, though. Elliott needs to sell its shares to make it real. Given that its stake now totals 17%, that’s a big worry for other investors. Selling so much on the market would hammer the share price.
Plenty of analysts today were complaining Alliance didn’t launch a monster tender offer for, say, 25% of the shares, allowing Elliott to make a sizeable exit now.
Given the panoply of measures the board did announce, that criticism seems harsh.
No doubt Elliott would like to bank its profit sooner rather than later, but, as vultures go, it’s not the fly-by-night variety some make it out to be. Its campaign against the government of Argentina lasted 10 years.
If today’s plan works, the NAV discount will narrow, and it will be able to trickle its shares onto the market, and everyone will be happy. If not, a tender offer can be considered further down the line.
Alliance and its new board deserve credit for coming so far. But most plaudits should go to Elliott for shaking up the tired old thing.