UK: New Rights For Pension Scheme Trustees Under The Takeover Code

Last Updated: 24 April 2013
Article by Kate Ball-Dodd and Justine Usher

Keywords: new rights, pension scheme trustees, Takeover Code

In July last year, the Code Committee of the Takeover Panel (Panel) issued a consultation paper dealing with pension scheme trustee issues. The Panel has now published its response to the consultation, together with the detailed rule changes. Broadly, the provisions relating to the employee representatives introduced to the Takeover Code in September 2011 will be extended to the trustees of the target's pension scheme(s). Other new provisions are also being introduced, including in relation to future funding agreements.

The intention behind the consultation is to help ensure the effects of an offer on a pension scheme can be discussed by the relevant parties at an early stage, so that any issues which might arise as a consequence of the potential change of control can be considered by the target shareholders and others. Most of those who responded to the consultation were in favour of the proposed changes – with the main objectors being members of the legal profession and private equity industry. The objections raised included the fact that pension scheme trustees have already been given specific protections by law, and some have questioned the justification for giving pension scheme trustees different rights under a Takeover Code transaction as compared to a private acquisition.

This table considers how some of the proposed rule changes differ from those initially put forward in July 2012.


Are the rule changes being adopted as proposed in July 2012?


Bidder to state its intentions as to the target's pension scheme – what is meant by "pension scheme"?

In part.

The original proposals applied to all pension schemes. The final rules will apply to any occupational pension scheme that: (i) is a funded scheme which is sponsored by the target or any of its subsidiaries (and not just wholly owned subsidiaries); (ii) provides pension benefits, some or all of which are on a defined benefit basis; and (iii) has trustees (or, in the case of a non UK scheme, managers).

They will not apply to a pension scheme which provides benefits only on a defined contribution basis. While some respondents suggested the rules should only apply to "material" pension schemes, the Panel does not think a materiality test is appropriate.

Bidder to state its intentions as to the target's pension scheme – what intentions have to be stated?

In part.

The bidder will have to state its intentions as to the target's pension scheme but there are some changes to the detail proposed. The bidder will have to state its intentions as to: (i) employer contributions into the target's pension scheme (including current arrangements for the funding of any scheme deficit); (ii) the accrual of benefits for existing members; and (iii) the admission of new members. If there are no changes, the bidder will have to say so.

The Panel does not think it appropriate to require a bidder to make statements as to covenant impacts, i.e. an assessment of the future ability of the target company to meet its funding obligations to its pension scheme.

The Panel is not proposing a requirement for the bidder to state the likely repercussions of its strategic plans for the target on the target's pension scheme.

Target board to give its views on the effects of the offer on the target's pension scheme


The target board will not have to state its views on the effects of implementation of the offer on the target's pension scheme, or on the likely repercussions of the bidder's strategic plans for the target on the pension scheme – on the basis the trustees are the people best placed to give an opinion on the effect of the offer on the pension scheme.

Distribution of announcements to pension scheme trustees


The bidder and target will have to make available to pension trustees all the documents that they are currently required to make available to the target's employee representatives.

Pension scheme trustees' views on the effects of an offer on the scheme


The trustees will have a right to circulate their opinion on the effects of the offer on the pension scheme. This opinion will either be attached to the target board circular, or, if not received in good time before publication of the target board circular, published on a website. The target will be responsible for the costs of publishing the opinion, but not for advice required to verify information in the opinion.

Disclosure of future funding agreements

In part.

The original proposal was that any agreement between the bidder and the target's pension scheme trustees in relation to the future funding of the scheme would be summarised in the offer document, and published on a website.

Following consultation, the Panel has decided that if the agreement is material in the context of an offer, it must be published on a website in the same way that other material contracts are published on a website, but not otherwise. If the agreement is material, it will also have to be summarised in the offer document.

The Panel is not proceeding with its proposed requirement to summarise any agreement entered into between the bidder and the company's employee representatives or the trustees of the target's pension scheme.

Definition of offer-related arrangements

The Panel did not propose any changes as part of the July 2012 consultation, but following consultation it has decided to do so.

The Takeover Code has restrictions on the target or any person acting in concert with it entering into any offer-related arrangement without the Panel's consent. An agreement on future funding of a target's pension scheme will be an offer-related arrangement – so if the target itself is party to the future funding agreement, or if the trustees are acting in concert with the target, the Panel's consent will be needed. As a target will not usually be party to a future funding agreement, and given the trustees are usually independent of the sponsoring company, the Panel was not proposing to amend the general restriction on offer-related arrangements to address this point.

However, and following the consultation, the description of offer-related arrangements will specifically exclude agreements between a bidder and the trustees of the target's pension scheme in relation to the future funding of the pension scheme.

Referral to the Pensions Regulator

The Panel did not propose any changes as part of the July 2012 consultation.

The Panel will not have the power to refer an offer to the Pensions Regulator. This is in line with the Panel's original view in the July 2012 proposals.

The rule changes will take effect on Monday 20 May 2013, although the right for the pension scheme trustee to have their opinion appended to the target circular will apply from 20 May 2013, even if the offer document to which the opinion relates is published before 20 May 2013.

A few useful reminders:

  • parties to the offer will be expected to stand by any public statement made during the offer period relating to any course of action they intend to take (or not take) after the end of the offer period. Where no time period is specified, the statement will normally be expected to hold true for at least 12 months from the end of the offer period;
  • the trustees will have a right to circulate their opinion on the effects of the offer on the pension scheme, in the same way that the employee representatives have a right to circulate their opinion on the effects of the offer on employment. This is a right, not an obligation (and the Panel has revised the wording of the rules so as to remove any uncertainty on this point); and
  • target directors may be trustees of the target's pension scheme. Questions as to whether they have a conflict of interest and if so, how that conflict might be managed, are matters for the directors concerned and will not normally be matters for the Panel to resolve.

The Panel issued a further two consultations in July 2012, relating to (i) companies subject to the Takeover Code; and (ii) profit forecasts, quantified financial benefits statements and material changes in information. Responses to these consultations have yet to be published.

Originally published 23 April 2013

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