The boards of Alliance Trust and RIT Capital have confirmed informal discussions about a merger between the two investment trusts but said further analysis needs to be carried out before a formal offer can be made.
Reports of merger talks first surfaced at the weekend when the FT reported the board of Alliance Trust had been approached by Lord Rothschild (pictured), chairman of RIT Capital, in recent weeks about combining the two investment trusts.
This was followed by a statement from Alliance Trust on Monday that said its board had received "an informal proposal for a merger of the two companies," but added that "no detailed terms have been provided".
This morning, a statement from RIT said "the possibility of combining the two companies for the benefit of both sets of shareholders is at a very preliminary stage of consideration."
It continued: "Further analysis and discussion will determine whether such an outcome is indeed in the best interests of shareholders and can be achieved. There is no certainty that an offer by RIT for the share capital of Alliance Trust will be made."
In accordance with stock exchange rules, RIT now has until 27 June 2016 to announce a firm intention to make an offer for Alliance Trust or announce it is no longer interested.
Alliance Trust yesterday also said it had recently appointed Canaccord Genuity, alongside other specialist advisers, to advise the company on continuing this process of development.
"The company wishes to thoroughly explore all options available to it for the long-term future benefit of shareholders and therefore expects that the strategic review outcome may not be determined for some months.
"The board of Alliance Trust notes recent press speculation relating to an unsolicited approach received by the board and confirms that RIT Capital Partners has approached Alliance Trust with an informal proposal for a merger of the two companies.
"However, no detailed terms have been provided by RIT with regard to the proposal or in respect of the company's two principal operating subsidiaries. The board of Alliance Trust will incorporate any formal merger proposal received from RIT into its strategic review, alongside the other options being considered."
RIT Capital disclosed a 3% stake in Alliance Trust last year, according to regulatory filings, but this is the first report of a link-up between the investment trusts.
The future of £2.6bn Alliance Trust, which was launched in 1888, has been under the spotlight after a year of change on the fund's board and management.
Early last year, activist investors Elliott Advisers, which currently have a 16% stake in Alliance Trust, demanded an overhaul of the trust's board, in a bid to ensure it was "fully independent, comprising solely non-executive directors".
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Chairman Karin Forseke stepped down on 1 January, and was replaced by Lord Smith, while chief executive Katherine Garrett-Cox gave up her role in March.
At the time Lord Smith said: "Alliance Trust is undergoing significant change to improve both its operating performance and investment returns. It has always had investment expertise at its heart and Katherine has done much, over the past nine years, to refocus the investment portfolio on its traditional strengths in global equities.
"Alliance Trust is now moving swiftly to implement the changes announced last year which are designed to enhance shareholder returns. This process is well underway and it is clear to us all that the role of chief executive of Alliance Trust Investments has changed significantly."
Performance has improved on the trust, which is managed by Simon Clements as of late - over one year to 6 May the trust has returned 2.4%, ranking it fourth in the AIC Global sector. However, it is trading at a 10.4% discount to NAV, according to Morningstar.
Meanwhile, the £2.5bn RIT Capital trust has also performed well over the past year returning 5.4%, the second best performing trust in the AIC Flexible Investment sector. It is trading at a 5.9% premium to NAV.
A merger would combine two of the oldest and most well-known investment trusts but questions surround the possibility of mandate changes - although both global they sit in different AIC sectors. Also, it is not yet clear whether Alliance Trust would need to relocate its Dundee base.
