Pensions Offered Seat at the Table in M&A Discussions

Pension funds are often one of the largest assets, and costs, to a company – now it looks like the people who look after them could get a say in corporate activity.

(July 6, 2012) — Pension fund managers could soon be included in their parent company’s merger and acquisition discussions, as the body overseeing takeovers in the United Kingdom has deemed the effect on employees’ retirement benefits an important concern.

The Takeover Panel has launched an industry consultation on measures that could see trustees and CIOs who are managing the pension fund of companies that are targeted by an acquirer offered better access to documents and discussions around potential bids.

Under current guidelines, the Takeover Code is principally concerned with how any deal would affect the shareholders of a company, and ensures they are given ample access and opportunity to consider how to vote on a bid.

Additionally, the UK’s Pensions Regulator does not have the power to demand potential acquirers consult anyone connected to a target company’s pension fund.

Proposals this week would see pension managers and trustees allowed the same access as parties representing the workforce – on an employment basis – and shareholders. These parties have a right to discover and discuss potential changes to the target company and ask questions about how the acquiring company may be affected.

Darren Philp, director of policy at the National Association of Pension Funds, said: “This is a welcome step. The Panel agrees with us that some of the powers that relate to employees should be extended to trustees of the company pension scheme. If implemented this would enable trustees to get much more information about the bidder’s intentions for the pension scheme.”

Pension funds have become an important part of corporate debates as defined benefit schemes have fallen further into deficit since the financial crisis and put strain on the sponsoring employer.

However, although pension fund representatives would be included in discussions, the panel said it would be untenable for agreement on the future of a pension to become pivotal to giving a green light to a takeover. The reason behind adding pension funds to the initial process would be to reveal any potential problems with funding early on and allow either side to express their views.

The consultation document said: “This should help to ensure that the effects of the offer on the pension scheme(s) could be discussed by the relevant parties at an early stage, with the result that any issues which might arise as a consequence of the potential change of control of the company could then be considered by shareholders in the offeree company and others.”

Philp at the NAPF concluded: “This is important as it gives trustees the information that they need, empowering them to ask the right questions and effectively represent the interests of those in the company scheme, both savers and pensioners.”

The full consultation document is available here.

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