Alliance buys back £64m of shares

Alliance_Trust_NewAlliance Trust has ramped up purchases of its shares, spending over £26 million last week in a determined bid to lower their discount.

The Dundee-based global fund has spent £26.4 million on buying back its shares in what looks like an increasingly active bid to reduce their discount to net asset value.

Since restructuring its board on 1 October and announcing its intention to reduce the discount to single digit figures, the company has spent £64 million on share buy backs, a huge increase on the £2 million and £20 million previously reported.

At this pace, Alliance will emerge as the biggest buy backer of the year, outgunning other funds also vying to lower their discounts such as Templeton Emerging Markets and hedge fund BH Macro.



However, the initiative, which has seen 27 transactions in 34 working days, does not appear to be having the intended effect.

According to data from Morningstar, after spending £20 million on its shares last month Alliance saw the gap between its share price and portfolio value narrow to just over 8 per cent.

But this effect was temporary, with the discount widening again above the all-important 10 per cent level this month. This led to a steady increase in buybacks culminating in this week’s frenzy of daily deals, the largest of which on Wednesday saw it spend £10 million buying 2 million shares at £5 each.

But the ramping-up of purchases has succeeded in shifting the stock from its normal trading range.

At the end of last week, shares stood at a discount of 10.1 per cent, better than the one-year average discount of 12.4 per cent.

The persistent situation maintains the pressure on Katherine Garrett-Cox, the highly paid chief executive who has stepped down from the board to concentrate on running its fund manager, Alliance Trust Investments, as well as socially responsible fund managers Peter Michaelis and Simon Clements, who took over the portfolio in September 2014.

Alliance needs to hit its sub-10 per cent target consistently if it is to keep shareholders happy, particularly Elliott Associates, the activist US hedge fund that is its biggest external shareholder with a position of nearly 14 per cent in the company.

Alliance has been on the run from Elliott since March when just before an extraordinary general meeting of shareholders it backed down and agreed to accept two of its nominations to the board.

Although Elliott has seen Alliance’s discount decline from 18 per cent since first declaring a holding in 2011, the trust’s performance has disappointed. Total shareholder returns over three and five years are below the Global Growth sector average and the MSCI World index.

Whilst Alliance’s latest efforts are impressive the current level of buybacks falls short of 2011 and 2012 when Alliance spent £350 million on its own stocks in a doomed attempt to shake off Elliott.

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