Dundee-headquartered Alliance Trust plc and London-based Witan Investment Trust plc have agreed to merge to create a company managing £5 billion in the latest example of consolidation in the investment trust sector.

The newly formed Alliance Witan is expected to be eligible to join the FTSE 100 index.

The companies said the deal is expected to be completed in late Q3 or early Q4 of 2024 and “represents the largest ever conventional equity investment trust combination.”

Alliance Trust uses external fund managers Willis Towers Watson (WTW), which in turn appoints a number of other stock picking firms with different styles.

Alliance Trust and Witan said the deal involves the introduction of a “more competitive management fee structure … expected to result in a lower ongoing charges ratio, particularly for Witan shareholders.”

The companies said Witan’s assets will be rolled into Alliance Trust in exchange for issue of new ordinary shares in the newly-named Alliance Witan plc. They said enhanced third and fourth interim dividend payments for shareholders in the enlarged Alliance Witan will extend the “dividend hero” status of both companies.

Witan shareholders are “expected to benefit from an immediate uplift in market value on completion of the transaction, and will have the option of a partial cash exit.”

The companies said the combined vehicle will offer improved secondary market liquidity.

They said Willis Towers Watson will make a “significant” contribution to help absorb transaction costs and that Alliance Trust shareholders are not expected to suffer any Net Asset Value dilution from the direct costs of the transaction and Witan shareholders are expected to suffer no or minimal Net Asset Value dilution.

“The combination will build upon the distinctive multi-manager investment model already employed by Alliance Trust — utilising the proven management skills and deep resources of Willis Towers Watson to create an actively managed global equity portfolio chosen by best-in-class stock pickers — and will apply that methodology within an even more liquid, high-profile and cost-efficient ‘one stop shop’ investment vehicle,” said the companies.

“With net assets of around £5 billion, significant economies of scale, eligibility for FTSE 100 inclusion, powerful and well-established brand recognition on both sides, and proven marketing expertise backed by dedicated resources and budget, Alliance Witan will aim to be the UK’s leading global equity investment proposition, at the core of retail investors’ portfolios.

“The combination will be undertaken through a scheme of reconstruction by Witan under s110 of the Insolvency Act 1986, which will see Witan’s assets roll into Alliance Trust in exchange for the issue of new Alliance Witan shares to the continuing Witan shareholders.

“Alliance Trust’s manager, WTW, will have overall responsibility for managing the assets of the combined Alliance Witan, 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 chair Dean Buckley 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.

“Witan was an early adopter of the multi-manager solution and, on behalf of my Board, we congratulate Andrew Bell and his team on all that they have achieved during their tenures.

“Combining our two historic companies, established in 1888 and 1909 respectively, recognises the attractive opportunity to deploy the investment strategy, which has proved to be robust through the investment cycle, at significantly greater scale.”

Witan chair Andrew Ross said: “Since Andrew Bell announced his intention to retire, we have been through an extensive process to identify the best candidate to take on the management of our shareholders’ assets.

“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.

“The companies share similar cultures and a mutual desire to provide a ‘one stop shop’ for retail investors in global equities.

“I am delighted to announce this transaction, the largest ever investment trust combination, in Witan’s 100th year as a quoted company on the London Stock Exchange.

“The deal will result in one of the leading investment companies listed in London and will stand our shareholders in good stead for many years to come.”