Shares in Alliance Trust have climbed 3.5% this morning on the news while RIT shares are trading down 1.5%.
Combining the two at their present market caps would create an investment company with a valuation of over £5bn.
RIT, which is chaired by financier Jacob Rothschild, confirmed this morning it had made an informal proposal to Alliance Trust. It said the talks on combining the two companies for the benefit of shareholders are at a “very preliminary stage.”
Alliance Trust released its own statement as well confirming the approach. It said no detailed terms have been provided yet but it will incorporate any formal merger proposal into its strategic review, alongside the other options.
Takeover Panel rules dictate that RIT must either announce a firm intention to make an offer for Alliance Trust or say it does not intend to by 27 June. This deadline can be extended at the discretion of the Takeover Panel however.
American activist investment firm Elliott Advisors will have a large say in what happens from here, given its 16% holding in Alliance Trust and proclivity for getting involved in the decisions of companies it has stakes in.
This hands on approach was evident in the recent dispute between Elliott and the Alliance Trust directors over its governance, which ultimately saw new directors which had been put forward by Elliott added to the board. Chief executive Katherine Garrett-Cox and chair Karin Forseke subsequently left their positions.
J.P. Morgan Cazenove is advising RIT on the matter while Alliance Trust has Canaccord Genuity in its corner.
