In a landmark move within the £273bn investment trust sector, two of the largest listed global funds have announced a historic merger. Witan, a £1.6bn investment trust with a legacy dating back to the advisory councils of Anglo-Saxon kings, is set to combine with its £3.4bn rival, Alliance Trust, based in Dundee. This merger represents the most significant consolidation of its kind in the UK.
Winding Up a Century of Tradition
After a century on the London Stock Exchange, Witan will be wound up, with its assets being transferred to Alliance Trust. The merged entity, to be named Alliance Witan, will issue new shares to Witan shareholders by October, signaling the end of an era and the beginning of a new chapter for both trusts. The combined market value of Alliance Witan is projected to be around £5bn, positioning it for promotion to the FTSE 100 index of top UK listed companies. This elevation will enhance the company’s profile and make its shares more accessible and cost-effective for trading.
Strategic Multi-Manager Approach
Both Witan and Alliance Trust employ a multi-manager approach, utilizing between six and ten external fund managers to oversee their assets. The merger aims to create a more efficient “one-stop shop” for investors, offering comprehensive equity exposure. By consolidating management, the new Alliance Witan is expected to reduce total ongoing charges to below 0.6% annually, compared to Witan’s 0.76% and Alliance’s 0.62%.
Financial and Shareholder Benefits
The merger is designed to deliver significant financial benefits to shareholders. Willis Towers Watson (WTW), Alliance Trust’s investment adviser, will contribute approximately £7.5m to offset merger costs, ensuring Alliance shareholders are not adversely impacted. Witan will cover its expenses through a tender offer, allowing shareholders to sell 17.5% of their shares for 2.5% less than their net asset value (NAV).
Witan’s chairman, Andrew Ross, expressed his delight at the deal, highlighting the continued multi-manager approach with lower fees and increased liquidity. To prevent any reduction in income for Witan’s investors, Alliance Trust has committed to raising its dividends. Both trusts have a strong history of growing annual payouts, making them “dividend heroes” and reinforcing their commitment to maintaining shareholder returns.
A Strategic Shift Amid Market Challenges
The decision to merge follows a strategic review prompted by the planned retirement of Witan’s CEO, Andrew Bell, who had significantly strengthened its investment strategy since 2011. However, Witan’s recent performance suffered due to a mis-timed shift to growth fund managers during the 2021-22 market sell-off. In contrast, Alliance Trust, under the guidance of Craig Baker, has adeptly navigated market shifts, benefitting from a larger weighting in the buoyant US market and major tech stocks.
Since Alliance Trust’s mandate change in April 2017, its assets have grown by nearly 102%, significantly outperforming Witan’s 60.6% growth. Despite this, Alliance has not fully met its target of exceeding the MSCI World index by 2% annually over three-year periods.
Looking Forward: Alliance Witan’s Prospects
The merger marks a significant achievement for Alliance Trust, which has successfully transformed from a poor performer on the verge of a takeover to a robust player in the retail investment market. Witan shareholders are encouraged to view the merger positively, and other investors are advised to watch for potential buying opportunities as the transaction completes.
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