UK: Takeover Panel Consultation – Higher Profile For Pension Scheme Trustees?

Last Updated: 31 July 2012
Article by Clive Weber, Justin McGilloway, Alison Hills and Marcus Kealey

Headline

It is likely pension scheme trustees will, at last, have a formal role where a scheme's listed participating employer is subject to a takeover bid. This would apply to participating employers registered in the UK and whose shares are traded on a UK regulated market1.

Background

Last year employees' representatives were included in the Takeover Code as "persons affected" and therefore became entitled to receive formal information about takeover bids. Their views on the impact of the bid on their employer have to be circulated to shareholders.

Several pension scheme trustee boards complained to the Takeover Panel that shareholders would also be better informed to evaluate the bid if shareholders had a greater understanding of the impact of the bid on the target company's pension obligations. For instance, a bid may result in pension scheme trustees making increased demands on the company if the company's covenant is adversely affected by a successful bid.

A lack of transparency on pension scheme deficits has in recent times proved to be an insuperable obstacle for some bidders. Deals involving Marks and Spencers and Sainsburys were scuppered due to pension issues. To date attempts to give pension schemes formal and earlier visibility in the takeover process have failed.

Takeover Panel's proposals

The Panel proposes to extend the requirements relating to "affected employees" to pension scheme trustees.

In summary:

  1. The bidder should disclose in its offer document its intentions regarding the company's pension scheme and the likely repercussions on the pension scheme of its strategic plans. If the bidder has no intention to make changes to the pension scheme, or considers its strategic plans will have no effect then it should say so;
  2. The offerree board should state its views in response;
  3. The terms of the bid should be formally disclosed to the company's pension scheme trustees, so they are well informed;
  4. The pension scheme trustees to have the right to append to the company's circular (to its shareholders) their opinion on the impact of the bid (if it succeeds) on the company's pension scheme, and the knock-on effect on the company itself; and
  5. If an agreement is reached between the bidder and the company's pension scheme trustees on funding (conditional on the merger), this should also be included in the offer document sent to the company's shareholders.

As the Takeover Panel explains, the purpose of these amendments to the Takeover Code is not to force the parties to reach a funding agreement, or to make the bid conditional on such an agreement, but instead to encourage an "early debate" with the pension scheme trustees on future funding of the pension scheme.

The Consultation opened for comment on 5 July 2012 and the Panel invites comments by the 28 September. Subject to the results of the Consultation it is envisaged the amendments to the Takeover Code will apply from January 2013.

Overall point

Whilst pension scheme trustees have historically intervened in the bid process, they have had no formal locus standi or framework within which to do so. If the Takeover Code is amended in line with the Consultation these obstacles will disappear.

Footnote

1. The definition is somewhat broader than this.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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