Investment trusts are notoriously resistant to change. When performance is good, there is no need for it; when performance is bad, the directors tell themselves that it’s just short term. Change usually needs an outside disrupter, and so it has proved with Alliance Trust, the formerly self-satisfied kings (and queen) of Dundee.
It has taken a new board for Alliance to admit that it’s not much good at investing. In future, it will pay others to do it, becoming a conventional investment trust with a retail fund administration business, Alliance Trust Savings, on the side. It was less this blinding flash of insight than the pledge to get serious about the shares’ discount to net asset value (NAV) that produced the positive response to the review last week.
ATS’s fixed fees appeal for larger self-administered pensions and Individual Savings Accounts. It is finally profitable, but is subscale against the likes of Hargreaves Lansdown, and too small to make a meaningful impact on Alliance’s NAV. The decision to keep it looks like an interim one.
At the other end of the investment company scale, on Monday the shareholders of Dolphin Capital Investors vote to decide whether it’s worth going on. The record is grim, but these votes usually expect the answer yes. In this case the board is urging shareholders to vote against continuation. Instead, the directors propose winding up the business, distributing the proceeds and putting themselves out of a job. Please don’t, says chairman Andrew Coppel, call it turkeys voting for Christmas.
Sky’s (almost) the limit
Rupert Murdoch doesn’t believe in playing safe. His latest attempt to pay £10.75 to win 100 per cent of Sky has the usual hallmarks of a gambler. Rather than make a straightforward bid for the 60.9 per cent that his 21st Century Fox does not own, the offer is by a scheme of arrangement.
This will save a little money, and avoid having a potentially troublesome small minority if an offer failed to reach 90 per cent acceptances. However, it also means that Fox cannot vote its shares, and the scheme requires a 75 per cent majority of outside shareholders voting in favour. In other words, holders of 15.2 per cent of the Sky shares could stymie the deal.
In practice, voting never approaches 100 per cent of those eligible, so if Jupiter, Royal London and Standard Life could persuade a few more holders to join them, the scheme fails. Since Mr Murdoch is unlikely to give up, the long-term risk in revolting seems modest, but the short-term risk helps explain why the Sky share price remains so far below £10.75.
The position of the minority is weakened by the bizarre decision of Sky’s independent directors to endorse the price before the announcement, but the Sky bulls are unabashed. Polo Tang at UBS argues that the shares are worth a magnificent £13.70, as the returns from the investment in mobile start to appear. That looks like pie in the, er, Sky, but a bump in the offer seems a worthwhile bet. After all, Mr Murdoch may not be immortal.
Not too bad for a journo
In 1969, Daily Mail & General Trust put up £2,000 to launch a magazine covering the euromarkets. Patrick Sergeant, then the Daily Mail’s City Editor, had the idea, and with his colleagues put up £200. It never needed any more. You may not be an avid reader of Euromoney. You may only have ever seen it lying about the City’s swisher banking halls. But now DMGT is to scoop £350m by selling down its holding in Euromoney Institutional Investor, from 67 per cent to 49 per cent.
DMGT is a curious beast. All the voting shares are held by the Harmsworth family, but an outsider, Paul Zwillenberg, is in charge. This sale is his first big move as CEO, although holding 49 per cent makes no more commercial sense than 67 per cent. Barclays has struggled through the financial implications of the move from subsidiary to associate. After the head-banging maths, it concludes: “This does look a positive for the story, even if it comes at a fairly heavy cost to the financials.” That’s one way of looking at a truly brilliant long-term investment.
This is my Financial Times column from Saturday