Pension trustees won’t hold up deals

Private equity firms should be largely unaffected by allowing pension scheme trustees of target companies to have a formal opinion of the deal, according to legal sources.

Concerns were raised when earlier this year the Takeover Panel, the UK regulator for M&A activity, released proposals giving a target company’s pension scheme trustees’ similar rights to its employees. 

Initially the industry feared that this would create more red tape and headache around UK takeovers.

The trustee provisions require a bidder to either set out its intentions to the pension benefit scheme and the likely consequences its plans have on the scheme, or say there will be no impact or change.

The trustees’ will also be able to comment on the bid, as will employees of the company, giving them the right to announce whether they approve of the deal.

“The changes should ensure that the bidder, the target board and the pension scheme trustees have an opportunity to express their views at an early stage of a bid (as is already the case with employees),” said Sean Geraghty, partner, at law firm Dechert.

Wyn Derbyshire, pension lawyer at SJ Berwin, added that although it is another issue in a private equity deal it would be unlikely to affect practice as this dynamic already existed, just not formally.

“It obviously will be another factor in putting together and running a transaction. Having said that, even prior to these changes, trustees would usually look quite closely at what was being proposed because their concern would be, and is, whether the proposed transaction leads to  any weakening of the financial strength of the employer and corporate group surrounding the employer,” Derbyshire told PE Manager.

“PE houses already take account of pension issues in the context of takeovers; whilst building this framework into the [Takeover] Code will add to the formal complexities of an M&A transaction, the intention is not to create stumbling blocks to reduce private equity involvement in public M&A,” said Geraghty. 

“Crucially, pension scheme trustees will have no rights to delay an offer or prevent an offer from becoming or being declared unconditional only once agreement has been reached on future funding arrangements,” added Geraghty.

However the provision would increase costs as given their fiduciary position they will take publishing a formal opinion seriously. “What will change is that by requiring trustees to do things like formally issue opinions and so forth, scheme costs will increase and somebody has got to pay for it and at the end of the day it won’t be the trustees,” warned Derbyshire.