David Prosser: Why takeovers should address pensions

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The Independent Online

Outlook The Takeover Panel tends to move slowly in updating its rules: it is still working out exactly what amendments should be made to the regulations governing M&A following the inquiries prompted by Kraft's controversial takeover of Cadbury last year. So it seems unlikely that a last-minute suggestion for tougher rules on disclosure on pension issues during bid processes will make the cut.

That's a pity, for the suggestions made to the Takeover Panel by leading pension scheme trustees seem sensible. They point out that the panel is intending to require bidders for a company to spell out what they have in mind for its employees and to solicit their opinions. In which case, aren't bidders' intentions regarding pension fund members and benefits equally deserving of disclosure?

The logical thing to do would be to create a mechanism through which scheme trustees give their views about whether a bidder's proposals should be of concern to members. That would probably mean commissioning a scheme valuation – which ought to be helpful to the bidder too, at least in terms of providing some clarity.

Remember too that the Pensions Regulator has a role here. Its rules now require pensions scheme trustees to consider the security of members' benefits during any takeover process – and, if they judge that a change of ownership at the company is weakening that security, to look for additional support from the acquirer, with the help of the regulator if necessary.

The timetable for this process, however, is markedly longer than for a takeover to be completed. As a result, trustees often find themselves negotiating with new owners long after the deal has been done – not always with satisfactory results, especially now buyers are so often tempted to test the extent to which the Pensions Regulator can hold them to account.

For that reason, trustees ought to be demanding more than just better disclosure on pensions from the Takeover Panel. It would also be to their benefit to push for acquirers, where necessary, to be forced to give commitments on scheme funding before they are allowed to complete the deal.

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