By Ian Findlay, industrial reporter

DUNDEE IS set to become home to the largest London Stock Exchange-listed generalist investment company in the UK through the merger of two locally-based companies with histories stretching back to the 19th century.

It was announced yesterday that the boards of directors of The Alliance Trust Plc and The Second Alliance Trust Plc have unanimously agreed the terms of a recommended merger of the two companies.

The tie-up, which is subject, among other things, to the approval of shareholders of both companies, will create a company with combined assets of some £2.77 billion.

It is hoped to have the merger concluded towards the end of June, when trading in shares of the new company will begin.

The two companies together employ 224 staff, the majority at shared offices in Reform Street and the remainder at new offices in London and Hong Kong.

Chairwoman Lesley Knox said yesterday that the merger would, in the view of both, result in an even better company.

“This is an important development in a relationship that started 88 years ago,” she said.

“Our core values and the Alliance spirit will not change. Many thousands of private shareholders know we put their investments first, but these will be carried on by a single, larger, simpler company that will be even better equipped to deliver value over time.

“We strongly recommend this course of action to shareholders of Alliance Trust and Second Alliance Trust.”

Yesterday’s announcement of the recommended merger coincided with the release by the Alliance Trust of its latest set of annual results, showing that the company’s net asset value jumped by 24.6% to end the financial year on January 31 at £2.04 billion.

There was a total shareholder return of 30.6%, with a capital growth of £395.5 million, against £146.7 million in the previous year.

A dividend of 73.5p per share has been announced, increased for the 39th consecutive year.

In an interview yesterday, the chief executive of the Alliance Trusts, Alan Harden, said it had been “an outstanding year” for the Alliance Trust.

Referring to the proposed merger, Mr Harden said that the investment portfolios of both companies had become “almost identical” and it made a great deal of sense from a simplicity point of view to put the two companies together.

“It also allows us to be more responsive to market opportunities going forward,” he said. “By having one single large investment company it provides us with the ability to take opportunities in the market that otherwise we have to go through a great deal of red tape in order to be able to enact to be able to get into the market quickly.”

Announcing the details of the proposed merger yesterday, the Alliance Trusts said the companies have the same investment objective, investment policy, the same directors, and share the same management. They have portfolios which contain almost identical investments and which include their joint holdings of companies such as Alliance Trust Savings Limited (ATS).

Over the past few years, the companies have jointly worked on, and are carrying out plans for, their future development. They are investing in shared staff and shared technology and, together, they have each established a presence in Hong Kong as well as increased their investment in ATS.

To ensure that both companies continue to maximise the potential of this investment and to secure and consolidate the benefits which they have both enjoyed by working together, the directors of both companies believe that one company, not two, “is the best way forward for all shareholders.”

Yesterday’s statement said that the directors believe that the merger will:

Result in a simplified structure able to take advantage of market opportunities in a more responsive and efficient manner.

Raise the profile of the combined company in the market and increase liquidity for its shares in the market.

Give shareholders the benefit of quarterly dividends.

Simplify corporate governance.

Facilitate the development of businesses such as ATS.

Following the merger, the combined company will follow the same investment objective and investment policy as Alliance Trust and Second Alliance Trust. A merger will see Second Alliance Trust shareholders become Alliance Trust shareholders.

The new company, to be known simply as Alliance Trust Plc, will move to quarterly dividends for shareholders, instead of two a year.

Current Alliance Trust shareholders will receive 10 shares in the new company for one existing Alliance Trust share. Second Alliance Trust shareholders will receive new Alliance Trust shares in proportion to the formula asset values of Alliance Trust and Second Alliance Trust, so that there is no transfer of value between the two companies.

Both companies have been investing since the 1880s.

The Alliance Trust can trace its origins in Dundee back to the 1870s, when various land mortgage companies, including the Oregon and Washington Investment Company, were established locally. In 1888, these companies came together as the Alliance Trust.

The smaller Second Alliance Trust has its roots in the Hawaiian Investment and Agency Company that was formed in 1880 to borrow money from Dundee merchants and lend it to sugar planters in Hawaii.

Its activities soon broadened and successor company, The Western and Hawaiian Investment Company, was formed in 1883 to offer mortgages in North America. In the early 1920s the Western and Hawaiian changed its name to the Second Alliance Trust.

The two companies, now known as the Alliance Trust and Second Alliance Trust, first agreed to share premises and management costs as far back as 1918.

Merger talk relating to what became The Alliance Trust and Second Alliance Trust is nothing new.

A report of proceedings at the annual ordinary general meeting of The Western and Hawaiian Investment Company Limited in 1918 reveal that, even then, there was speculation, or at least rumour, about an amalgamation.

At the meeting, held in the then Lamb’s Hotel in Dundee, chairman William Mackenzie alluded to a rumour having reached him that such an amalgamation was in progress.

He ruled it out, telling those at the meeting, “While that may be one of the possibilities of the future, it is not in present contemplation, and in any event cannot be considered until after the war and actual experience of the blessed conditions of peace has shown what circumstances and considerations may emerge for discussion in dealing with a matter of such importance.

“Should such a negotiation be undertaken it must proceed on a basis of mutual advantage.”