UK pension trustees could ‘frustrate’ takeovers

Pension trustees of UK companies could slow down acquisitions if market regulators enforce proposed changes to the UK Takeover Code.

The UK’s mergers and acquisition watchdog, the Takeover Panel, published a consultation paper last Friday that looks to give pension scheme trustees a say in takeovers affecting the company’s pension scheme.

The primary aim of the proposal is to provide some protection to the trustees by allowing them to assess the implications of a takeover and express their views during the offering period.

The panel stopped short of requiring trustees to agree to a bidder’s plans during the takeover process. But if the trustees view the employer covenant (the financial and legal strength of the potential pension sponsor) or the deals financing in a negative light it is likely to lead to onerous funding requirements.

“I can imagine that many of the private equity buyers will view this as an extra burden to the transaction,” said Lorant Porkolab, head of covenant advisory services at Punter Southall, to PE Manager.

“Private equity buyers tend to have a preference for getting the deal done quickly so I would think that the extra delay these changes might bring to the process is more likely to be viewed as frustrating,” he added.

However despite the perceived negatives for private equity Porkolab argues that getting trustees on board early will bring “clarity” to the deal. 

“If the trustees express certain concerns about the transaction or the financing of the transaction then the bidders hear about these concerns early on and are in a position to assess the implications of the trustees view on the deal,” said Porkolab.

“In my view it also can provide a certain degree of protection to bidders because in the past they didn’t always assess the size of the pension obligations and the liabilities properly and they ended up with something bigger than they wished for,” he added.

The proposals follow responses which commentated that trustees where the last to know about takeovers and the impact on the pension scheme. 

If the proposal is enforced bidders will be required to disclose their intentions and strategy for the target’s pension plan in its offering document and make this available to the trustees.

The consultation closes on 28 September.