Pensions Regulator in Talks with Sainsbury’s over Asda Merger

Sainsbury CEO says proposed £7.3 billion merger ‘strengthens’ pension covenant.

The UK’s The Pensions Regulator (TPR) is in talks with supermarket operator J Sainsbury’s pension trustees over the impact its proposed £7.3 billion ($9.9 billion) merger with Asda will have on the companies’ pension plans.

The discussions were spurred by a request from Frank Field, chairman of the House of Commons Work and Pensions Committee, to Sainsbury CEO Mike Coupe that the company get approval for the merger from TPR.

Under the terms of the merger deal, Asda parent Walmart will assume responsibility of Asda’s defined benefit pension plan, pending approval from its trustees.

“This leaves the question of how the deal will affect the J Sainsbury group’s defined benefit pensions schemes,” said Field in a letter to Coupe. Sainsbury’s pension plans had a combined deficit of £974 million in March 2017, according to Field.

TPR said it expected “any business planning a major corporate transaction to identify if there is potential material detriment to a pension scheme and explain how they will mitigate against that detriment,” according to the Financial Times. “They can then come to us for clearance to gain assurance that we will not use our anti-avoidance powers.”

In his letter, Field inquired about whether the terms of the merger deal included provisions for Sainsbury’s defined benefit pension plans, and what risk analysis has been performed regarding the potential impact on the pension’s covenant, which is an employer’s legal obligation and financial ability to support its defined benefit pension plan.

In a letter responding to Field’s inquiries, Coupe said “our plans take full account of our obligations to our current and former colleagues,” and that “throughout the planning of this transaction, we have considered the impact it would have on our defined benefit pension scheme.”

Coupe also said they brought a member of their pensions team onto the merger transaction team “at an early stage, and we undertook, with the support of our advisors, a review of the impact on covenants,” adding that the proposed merger “strengthens the pension covenant, and thereby protects the long-term interests of around 90,000 Sainsbury’s defined benefit pension scheme members.”

Supporting Coupe’s claims, John Ralfe, an independent pensions consultant, told the FT he believed the Sainsbury-Asda deal could be beneficial for pension participants, saying, “Asda pension scheme members are better off because they are supported by the whole of the Walmart group,” and that “Sainsbury’s pension members would also be better off because they are supported by a bigger company.”

Coupe said  Sainsbury had planned to notify TPR and the full trustee board prior to making a formal announcement, however, news of the merger was leaked before it had a chance to contact the regulator.

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