The vulture v blueblood
As struggling Alliance Trust enters talks with investment rival RIT . . .
TWO titans of high finance, long part of Britain’s monied establishment, are in talks over a possible merger.
Lord Rothschild’s investment company RIT Capital Partners is mulling a takeover of Alliance Trust, a bastion of Scottish money-making prowess since 1888.
In keeping with the secrecy which always surrounds such businesses, few details have yet emerged about the deal itself. Both companies have confirmed talks. But how much RIT is prepared to pay, the time frame involved and whether Alliance’s owners would get cash as well as shares still remain a mystery.
We do know the tie-up would create a publicly-listed company with a value of more than £5bn. And we know that – despite the two firms’ illustrious histories – it would combine Rothschild old money with a company captured and warped by what some see as brash American capitalism in the form of New York activist investor Paul Singer, 71 ( picturedleft).
RIT dates from 1961, when it was founded by Eton- educated Jacob Rothschild ( picturedright) – although the famous banking family’s money goes back far further, at least to the bullion trade before the Napoleonic Wars.
The Rothschilds financed Britain’s armies under the Duke of Wellington and provided the financial muscle for much of the British Empire through its centuries-old bank NM Rothschild & Sons.
Jacob helped found Rothschild Investment Trust, to manage family investments outside that bank. In 1980, he fell out with his cousin Evelyn, then the head of NM. Jacob quit his role at the bank and took over the trust. Evelyn forbade him from using the family name, so he rebranded it RIT.
RIT went public in 1988, likes to spread its assets and has delivered returns of 12.6pc a year ever since – double the average.
Insiders say small investors trust the company because Jacob’s goldplated name and top-rate contacts book mean he is offered opportunities others miss.
Today the 80-year-old peer – who is worth around £650m – serves as RIT’s chairman and holds an 11.7pc stake.
He has all the trappings of a life of luxury, including a reputation as a philanthropist. He gained a first in history at Christ Church, Oxford, and has been close to heads of state, including Margaret Thatcher and Ronald Reagan. In a sign of the family continuity which has long preserved Rothschild wealth, Jacob’s daughter Hannah, 54, has an 8.8pc shareholding and is a non- executive director. The Rothschilds might be among the oldest of old money but a whiff of traditional finance also long hung around Alliance Trust – until last year, that is.
Led by Katherine Garrett-Cox, the venerable Dundee business had grown its dividend every year for almost five decades.
It supported ‘ethical’ investment – with a fund which shied away from controversial shareholdings in areas like tobacco and weapons. Then the Americans got involved.
Elliott Management Corporation, a hedge fund founded by outspoken New Yorker Singer started buying up shares – and decided a radical change of direction was needed.
Singer could not be more different to the Rothschild family. Born in New Jersey to a pharmacist father, he is a self-made billionaire who acquaintances say is always asking: ‘What am I getting for the buck?’
Where Jacob’s circle has included prime ministers, Singer has jammed onstage with rock star Meat Loaf and given money to the Tea Party, the hard-right group of anti-establishment Republicans. He has also been criticised for pre- siding over a ‘vulture fund’ after making huge profits buying Argentinian government debt as the country’s economy collapsed, then demanding payment in full.
This muscular approach was clear at Alliance. Elliott bought shares, then demanded an improvement in prices and called for a change in management.
Alliance’s then-chairman Karin Forseke branded the hedge fund ‘destructive’ – but ultimately it agreed to appoint two of Elliott’s proposed non-executive directors in a climb down last April.
The all-female team of Garrett-Cox and Forseke both quit the board in the wake of the row amid a reek of sexism – and Elliott still owns 16pc of the company.
The success of the merger will to a large extent depend on Singer’s next move. Having won his battles at Alliance, he is understood to be looking for an exit – and could demand a cash offer instead of shares in RIT.
For the Rothschilds’ part, succession planning will surely play a role in the deal and they may be looking to hand out shares and bring in new investors from outside the family.
One thing is for sure. With a take-no-prisoners New Yorker and one of Europe’s oldest banking families potentially headed for a collision, the deal will not be plain sailing.