Alliance Trust, Elliott's clash over directors escalates

(Adds Alliance Trust, Elliott's second responses, CEO quotes)

By Nishant Kumar

LONDON, March 20 (Reuters) - Alliance Trust rejected Elliott Advisors' proposals for a management overhaul on Friday, prompting a sharp reaction from the activist investor and setting the stage for a battle with one of the world's best-known hedge funds.

As the war of words escalated between one of Britain's oldest investment firms and its largest individual shareholder, the Trust issued a second letter challenging Elliott's claim that some assertions by the company about a tender offer in its early morning response were factually incorrect.

Citing earlier interactions, the company said it had minutes of meetings with Elliott that showed the hedge fund repeatedly suggested the Trust to undertake a tender offer for 40 percent of its shares at a discount of 5 percent or less.

"We are determined that they (Elliott) will not mislead our shareholders," the Trust said in the statement, taking on a hedge fund known for its campaigns against several companies.

Elliott retaliated with a further response:

Elliott has raised concerns over corporate governance at Alliance Trust and sought support from fellow investors to appoint three directors to its board.

The Trust has branded the proposals as "completely unacceptable" and its Chief Executive Katherine Garrett-Cox told Reuters in an interview that it masked "a rather different agenda compared to the other individual shareholders".

The firm told shareholders that the proposed directors could not be judged to be independent and raised concern that the investor might try to exert "undue influence", inviting a new call by Elliott urging shareholders to back its resolution.

"This decision is indicative of a Board that is out of touch with the concerns of its shareholders, and which needs fresh perspectives," Elliott said in a statement on Friday.

The firm has in the past agitated against firms including Actelion (Xetra: 936767 - news) , Telecom Italia (Other OTC: TIAJF - news) and Hess. The hedge fund remains Argentina's main hold-out creditor.

Elliott has called for a vote on the boardroom shake-up at the company's annual general meeting on April 29. It flagged a "persistent underperformance", the costs of its investment management function and continued losses in its two operating subsidiaries as its key concerns.

"Elliott would pursue a short-term agenda aimed at facilitating an exit from its shareholding in the company. Given the size of its position, this would involve disruptive actions which are not in the long-term interests of our shareholders," the Trust said in a statement.

Such a move would require a significant liquidation of assets, potentially threatening the existence of the company.

The hedge fund also saw little or no value in the Trust's dividend distributions, the company said, adding its dividend policy was one of the most important factors behind the interest of a vast majority of its shareholders.

Alliance Trust is popular with income-seeking retail investors and increased the total payout last year by 14.3 percent to 12.4 pence, the 48th straight year of growth.

Calling Elliott's criticism of its returns "misguided", the company said the Trust's shareholder returns were top quartile since the new equities leadership team was put in place almost six months ago.

"My email box is being deluged with emails of support, telephone calls, people wanting to help," Garrett-Cox said.

"I think that says a huge amount in terms of how people perceive this type of activity and just the way it's been done."

Elliott claimed earlier this week that the company's poor corporate governance and weak cost controls were behind a relatively wide discount of around 13 percent to its net asset value of some 3.3 billion pounds ($4.9 billion). ($1 = 0.6787 pounds) (Reporting by Nishant Kumar; Editing by Sinead Cruise, Keith Weir and David Evans)