Alliance Trust Savings is a fine product. You pick the shares (or funds) for your SIPP or ISA, and trade at a competitive price. No matter how much your fund grows (or shrinks) the fee remains the same. It’s a refreshing change from the percentage skim levied by almost all ATS’s competitors.
There’s one snag. It’s losing money for its parent, Alliance Trust, and as any fule kno, there’s no future in a loss-making business. ATS was started about the same time as Hargreaves Lansdown, which is now valued by the market at £5.7bn. By contrast, the accumulated losses at ATS and Alliance Trust Investments add up to £50m.
We shareholders and ATS customers are invited to take the long view. This sounds suitable for an institution founded in 1888, if the performance of the parent investment trust was good enough. Unfortunately, it’s not, which is why Elliott Advisors has accumulated an interest of 12 per cent (7 per cent of which comes from derivatives) despite a half-hearted share buyback programme. It’s proposing three directors at next month’s annual meeting, and promises a scrap.
Neither side can claim the high ground. Elliott’s plans are opaque, and its choice of candidates looks disingenuous. Alliance has responded in apocalyptic tones, that Elliott “threatens the very existence of the company” and – shock, horror – is short-termist. This is close to hysteria. Alliance is not a national treasure. It’s a commercial business, and Elliott has found enough sellers to accumulate 5 per cent despite the double-digit discount to asset value.
If Elliot’s plans roughly amount to: Do something, or else, then the board’s response is effectively: How dare you. Alliance looks complacent, while costs are rising, long term performance is mediocre at best, and its diversifications don’t seem to be paying off. It can fulminate about its own due process for appointing directors, but the process has succeeded only in ticking the gender diversity box.
With 28m shares, Elliott is in too deep to pack up and leave. Besides, the Alliance board deserves the kick up the backside that its largest voting shareholder is intent on delivering. The board has enough residual goodwill to win the vote next month, but a little humility, an acknowledgment that Elliott has the same rights as the longest-holding shareholder, and a look at the obvious areas for compromise would be in everyone’s interests.
Keystone cops it
Gulf Keystone Petroleum, the self-styled “operator of the world class Shaikan field in the Kurdistan Region of Iraq” and a favourite with more excitable investors, has a spot of bother with its 13 per cent dollar notes due for repayment in two years’ time.What was billed as a technical change to the covenants now looks “like a hard sell” according to brokers SP Angel.
Too true, if the price of the notes is any guide. This has collapsed from $95 to $67, so a buyer should make 50 per cent on his money in two years, earning nearly 20 per cent in interest in the meantime. Except the price is saying that he won’t. Indeed, it increasingly looks as though whatever value is left in this jam-tomorrow company is draining to the holders of the distressed debt, who are unlikely to spare much thought for the shareholders. The shares at 37p are already in the 90 per cent club. They’re still too high.
Shoot yourself, then you’ll be sorry
A group of Tesco shareholders would like £4bn to compensate them for the loss the supermarket giant has caused them by its pollyanna view of profits. They’ve employed solicitors, citing a “permanent destruction of value” and reckon 50p a share is the least that they should get. The loss, sobs John Bradley of Tesco Shareholder Claims, has “hit pension funds and investors across the UK and beyond.”
It’s unlikely that he’s thinking of Warren Buffett here, although this sort of action is more common in the land that sometimes seems populated entirely by lawyers and litigants. So who’s going to pay the £4bn? There will be some D&O insurance for the (mostly former) directors, but it’s an almost impossible case to prove and won’t stretch anywhere near that far. That leaves Tesco itself, a company owned by its shareholders. Oh, wait a minute…
This is my FT column from Saturday