Witan to mix with Alliance in £5bn funding belief megadeal

Witan Investment Trust will merge its assets with London-listed peer Alliance Trust to form a £5billion portfolio allocating cash to a range of global stock pickers and targeting FTSE 100 status.

In a joint statement on Tuesday the investment companies said Witan’s assets would be rolled into Alliance Trust in exchange for new ordinary shares in the renamed and enlarged Alliance Witan investment trust.

Investors will benefit from a ‘new, more competitive management fee structure’ and expectations of a ‘lower’ ongoing charges ratio, as well as ‘enhanced’ third and fourth interim dividend payments, the statement claims.

Witan shareholders will have the option of a partial cash exit, while both companies’ investors are expected to suffer ‘no or minimal net asset value dilution’.

The deal, which represents the largest ever conventional equity investment trust combination, is expected to lead to ‘an immediate uplift in market value’ for Witan shareholders as a result of Alliance’s narrower discount to net asset value.

Alliance Witan will also attain ‘eligibility for promotion to FTSE 100 Index in due course’.

With the deal expected to be completed by early in the fourth quarter of this year, Alliance’s portfolio manager Willis Towers Watson has agreed to pay £7.4million to cover some of the costs.

FTSE 250-listed Alliance Trust shares were up 0.7 per cent to 1,208p, having added 22.5 per cent over the last 12 months and 52.1 per cent over the last five years.

Witan shares, which are also listed on the FTSE 250, were up 4.4 per cent to 272.5p. They are up 23.5 and 27 per cent over one and five years, respectively.

Witan chair Andrew Ross said in a statement that the decision to merge with Alliance followed the announcement that its chief executive Andrew Bell was to retire, leading to an ‘extensive process to identify the best candidate to take on the management of our shareholders’ assets’.

He added: ‘The board assessed a number of very strong proposals, including single-manager candidates with impressive track records.

‘However, the board was unanimous in recommending the combination with Alliance Trust, which allows the continuation of our multi manager approach at lower fees and in a larger, more liquid vehicle.’

Higher dividends for Witan investors?

Shareholder payouts have been a key attraction of both Witan and Alliance, with both donning ‘dividend hero’ status in the investment trust industry.

Witan currently trades with a dividend yield of 2.31 per cent and boasts annualised five-year dividend growth of 5.14 per cent, according to Association of Investment Companies data.

Alliance trades with a dividend yield of 2.09 per cent and has annualised five-year dividend growth of 13.2 per cent.

Alliance Witan is set to increase its third and fourth interim dividends for the financial year ending 31 December ‘so that they are commensurate with the interim dividend payments currently being paid to Witan shareholders’.

The groups said: ‘This is currently estimated to represent an increase of 2.6 per cent on the first Alliance Trust interim dividend of the current financial year and a 7.1 per cent increase on the fourth Alliance Trust interim dividend for the year ended 31 December 2023.

‘Furthermore, it is anticipated that Alliance Witan’s dividend for the financial year ending 31 December 2025 will be increased compared to the prior financial year such that a Witan shareholder will continue to see a progression in their income.

‘This progressive dividend increase will represent a fiftieth consecutive year of dividend increases for Witan shareholders as the combination takes effect, and will extend Alliance Trust’s unsurpassed record of increasing dividends for 57 years in a row.’

Will the Witan Alliance merger mean lower fees?

A shake-up of how Willis Towers Watson is compensated for its portfolio management will lead to lower fees for investors, according to Witan and Alliance.

Data suggests Witan shareholders currently pay some of the highest fees among peers.

Witan investors pay an ongoing charge before performance of 0.96 per cent of NAV, compared to an AIC Global sector average of 0.48 per cent, according to AIC figures.

Alliance charges an OCF ex-performance of 0.62 per cent.

The companies said the deal will result in a lower ongoing charges basis point ratio – a different method of calculating costs as a proportion of assets. 

‘The new management fee structure and the economies of scale which the combination will bring will allow Alliance Witan to target an ongoing charges basis points ratio in the high 50s in future financial years, an improvement to both Witan’s and Alliance Trust’s current ongoing charge ratios, which are 76bps and 62bps, respectively.’

Investors are also set to be benefit from improved secondary market liquidity as a result of the combined company’s greater size. 

How do the Witan and Alliance investment trusts compare?

Alliance and Witan said the combined trust would ‘preserve’ the ‘distinguished heritages of both companies’.

It will do this by ’employing the same proven approach as has been successfully utilised by Alliance Trust since WTW’s appointment in 2017 – selecting a diverse team of expert stock pickers, each of whom invests in a customised selection of 10-20 of their best ideas’.

Alliance Trust aims to deliver a real return over the long term through a combination of capital growth and a rising dividend.

Its manager Willis Towers Watson does this via a portfolio of investment fund holdings, each managed by active stock pickers from investment companies around the world investing across a variety of different industries and regions.

Alliance’s most recent fact sheet shows information technology, financials and industrials are its biggest exposures, representing 18, 16.9 and 14.6 per cent of the portfolio, respectively, as of April.

Its biggest individual stock exposures are tech giants Alphabet, Microsoft and Amazon.

Alliance’s share price performance has been comparable with peers in the AIC Global sector. 

However, the sector is down 9.2 per cent over three years and up 56.7 per cent over five, while Alliance shares have added 29.6 and 68.5 per cent over the respective periods.

The trust has posted a net asset value total return of 22.4, 28 and 70.1 per cent over one, three and five years respectively. The AIC Global sector is up 20.8 per cent over one year, down 4.2 per cent over three years but up 72.1 per cent over five years.

Alliance currently sits on a 5.6 per cent discount to NAV, compared to an industry average discount of 9.6 per cent.

Witan, meanwhile, sits on a discount to NAV of 7.8 per cent, having underperformed the AIC Global sector on both share price and NAV total return over one and five years.

Like Alliance, Witan’s top sector exposures are financials, industrials and technology, which make up 18, 16 and 13 per cent of the portfolio, respectively.

Dean Buckley, chair of Alliance Trust, said: ‘The formation of Alliance Witan brings together the two leading open-architecture multi-manager investment company propositions in the UK to form a FTSE 100 equity investment vehicle with the quality, cost efficiency and profile to play a leading role in the UK investment market.

‘Shareholders will benefit from access to the proven investment process implemented by our investment manager, Willis Towers Watson, and access to the world’s leading stock pickers.

‘This is also a significant moment for our industry in broader terms – Alliance Witan represents a key milestone in the history of the investment trust structure which has demonstrated its capabilities very effectively over many decades. ‘

What do analysts say about the portfolios?

In their most recent research note on Alliance in November, analysts at Quoted Data said the trust’s ‘diversified blend of active managers could be the key factor behind the trust’s performance being ahead of global equities over multiple time frames’.

Quoted Data added: ‘ATST appears to have been able to capture benefits of the sentiment shifts in global equities over the last five years.

‘This performance distinguishes it from its wider peer group, where the presence of strategies with strong stylistic biases may have a factor behind the median return of this group not keeping pace in recent years.’

In April, Keplar Trust Intelligence analyst William Heathcoat Amory said Witan had ‘carved a name out for itself as a strongly independent investment trust, which appeals to private investors seeking to benefit from the trust’s significant economies of scale and the ‘collective wisdom’ of the board and investment managers working for it’.

He added: ‘Notably, WTAN has built up a 49-year track record of unbroken dividend increases, which forms part of the appeal of the trust.

‘For some time now, WTAN has been managed with a strong emphasis on responsible investment.’