Reuters: Money: Hedge fund Laxey urges dividend hike at Alliance Trust

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Hedge fund Laxey urges dividend hike at Alliance Trust Mar 29th 2012, 11:39 By Tommy Wilkes LONDON | Thu Mar 29, 2012 7:39am EDT LONDON (Reuters) - Laxey Partners is calling on Alliance Trust to raise its dividend, the latest move by the Isle of Man-based hedge fund to try to shake up performance at one of Britain's largest investment trusts. In a letter addressed to the trust's chairman Lesley Knox, Laxey said Alliance will be in a position to pay larger dividends when new tax rules come into force allowing some investment trusts to pay realized capital gains as dividends for the first time. Laxey, which has waged a campaign dating back to 2010 to try and force Alliance to boost shareholder value, is upping its pressure on the trust to improve performance ahead of its annual general meeting next month. Earlier this month, it put forward a resolution to fellow shareholders demanding the trust consider outsourcing management of its 2.9 billion pound portfolio of assets, and criticizing the performance of Alliance as "completely unacceptable." Alliance Trust said on Thursday in response it had already hiked its dividend by 7 percent last year, the largest annual rise in two decades. Laxey also gave an example of how Alliance could increase its dividend by paying out all 2011 earnings per share and realized capital gains as a dividend. "The example given by Laxey makes Greek finances look prudent," a spokesperson for the trust said. Last year Alliance defeated a controversial shareholder resolution pushed by Laxey to set up an automatic buyback policy, which would have been triggered when a discount of its shares to net asset value fell below 10 percent. A discount to net asset value occurs when the market places a lower value on a company - measured by its share price - than the value of its component assets. This is often because investors believe those assets are poorly managed or illiquid, and so their full value is not reflected in the shares. Many investment trusts trade at such a discount, but few as wide as Alliance. Alliance has already spent almost 250 million pounds buying back 67.7 million shares - equating to more than 10 percent of its stock - to try and narrow the gap, marking a sea-change in Alliance's historical approach to buybacks. But the hedge fund continues to criticize its buyback policy as ineffective. At December 31, Alliance had narrowed the discount to 15.5 percent from 17.1 percent 11-months earlier, although this has subsequently widened to more than 16 percent. Oriel analysts said in a note that playing about with dividend payouts was only "smoke and mirrors." "Neither of Laxey's recent proposals has merit in our view and we do not see the discount narrowing unless their original proposal of a discount control mechanism (DCM) is introduced, and/or performance picks up strongly and is sustained over a period of years, rather than months," they said, reiterating their "Negative" recommendation on the stock. (Reporting by Tommy Wilkes; Editing by Laurence Fletcher and Jane Merriman) Link this Share this Digg this Email Reprints

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