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14 June 2002

SIT hits out at investors over break-up plan

• Division of assets proposal rejected
• No confidence bid could be next move

The £1.1 billion Scottish Investment Trust launched a blistering attack on two of its largest institutional investors yesterday, who had proposed the trust be broken up in a radical restructuring.

SIT, founded in 1887, said it had thrown out the proposals, from Hermes Investment Management and Axa Investment Managers, to transform the company into a split fund with the assets divided into a UK index fund and a managed fund.

The two institutions are unhappy that SIT shares are trading at significantly less than the trust's net asset value (NAV).

Axa, which holds 10.6 per cent and Hermes, which holds 8.9 per cent of SIT, could now try to raise enough shareholder support to launch a bid of no confidence against the company board, which is chaired by Sir Angus Grossart. Scottish Widows, Standard Life, Equitable Life, DC Thomson and L & G are also large shareholders, and their support would be vital.

However, about 55 per cent of SIT's shares are controlled by a legion of 35,000 small private shareholders, making the institutions' task significantly harder.

Hermes has stated in the past it is unhappy about Sir Angus's role at the company and its use of Noble Grossart as corporate advisors to the trust. Hermes recently aborted a prolonged attempt to take over Edinburgh Fund Managers, which also uses Noble Grossart as an advisor.

In a statement, SIT said the proposals were "costly, opaque and of uncertain outcome".

It added: "The proposal offers no potential to increase long-term value for shareholders. Indeed, the opposite may be the case as an index fund may be fashionable but has no discretion over investment, whereas SIT is able to adapt its policies as conditions change."

The trust said the cost of implementing the changes, estimated at £22 million, was prohibitive and would include the high costs of liquidating unquoted investments, neutralising debt and paying advisors.

It added: "The board sees no virtue in replacing a savings vehicle which has a structure of clarity and integrity with one which would be opaque and shifting."

Sir Angus said: "The proposal is a complex exercise in financial engineering. It includes the suggestion that shareholders elect to convert their shares into reclassified shares in the sub-funds; the possible placing of shares in the index fund; the sale of assets to meet costs of the reconstruction; the selling of £290 million of overseas shares and the purchase of up to £170 million worth of UK equities; and proposals for the treatment of the company's debt of £222 million."

Both Axa Investment Managers and Hermes Investment Management were unavailable for comment last night.

Andrew Murray-Watson
Senior Business Reporter

Business Scotsman
The Scotsman