The last-minute compromise marks the end of one of the highest-profile shareholder rebellions against a British company and sets the stage for further change at the 127-year old company led by Katherine Garrett-Cox.

Elliott had called a vote to add Anthony Brooke, Rory Macnamara and Peter Chambers, the former CEO of Legal & General Investment Management, to refresh the seven-strong Alliance board on March 16, citing concerns that the trust's management had run out of ideas to boost shareholder returns.

"Having considered this feedback we have worked with Elliott to find a compromise which we believe is in the best interests of all our shareholders," Alliance Chairwoman Karin Forseke said in a statement that welcomed Brooke and Macnamara to her board.

Forseke told Reuters last week that the board recognised its responsibility to "challenge all elements" of the company's business, and said it would reflect on feedback from shareholders.

Elliott's campaign to overhaul the trust's board, which won wide support from shareholders and advisory firms, morphed into a debate around the company's governance, executive pay and the possible merits of outsourcing management of Alliance's diversified portfolio of assets.

Alliance rejected Elliott's criticisms in a series of statements and video appeals that questioned the activist's long-term intentions and the independence of its nominees but moved to appease the investor in talks led by Forseke on Monday.

"This is a sure sign that having seen the scale of proxy votes from shareholders mounting up in favour of a shakeup, the Board has rightly determined compromise is better than a very public defeat," said Jason Hollands, managing director of Tilney Bestinvest, which planned to vote its clients' shares in favour of Elliott's proposals.

"The status quo is clearly no longer an option but the first vital step is for a de-escalation of tensions after the war of words of recent weeks," he added.

PRESSURE

Investors and analysts said the compromise would increase pressure on Garrett-Cox to address the trust's underperformance and the gap between its share price and the value of the assets it holds, a long pending demand by investors that has led to three shareholder revolts since 2011.

The trust's shares have lagged rivals such as Scottish Mortgage and F&C Investment Trust over both five and ten year periods and traded at 12.3 percent discount to their net asset value as at April 27, more than twice that of average peers, data from trade body AIC showed.

Elliott has agreed to suspend any plans to agitate against the board or management of Alliance publicly until after the 2016 annual general meeting, giving a respite to the firm to improve performance.

"The key question now is whether the changes the trust has put in place will deliver outperformance for investors, and on that point we will have to wait and see," said Laith Khalaf, senior analyst at investment firm Hargreaves Lansdown.

Shareholders had favoured the trust's management in two similar campaigns by hedge fund Laxey Partners in 2011 and 2012.

Nearly 80 percent of the shareholders voted against Laxey's resolution to consider outsourcing the management of its assets in 2012. A year earlier, over 65 percent voted against Laxey's resolution to set up an automatic share buyback policy.

Elliott is the largest individual shareholder of the trust with a 12 percent stake but 'mom and pop' investors, who hold 65 percent of its shares, have the greatest say in who they want to run the Dundee-based firm.

"I think Alliance might have scraped through, but the very fact that the resolution was raised showed that some change was needed. That would have been true, whatever the result of the vote," said Richard Marwood, senior investment manager at Axa Investment Managers, one of the trust’s 10 largest investors.

(Reporting By Sinead Cruise, editing by Carolyn Cohn and Louise Heavens)

By Sinead Cruise and Nishant Kumar