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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:
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;
The offerree board should state its views in response;
The terms of the bid should be formally disclosed to the
company's pension scheme trustees, so they are well
informed;
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
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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