Federal-Mogul may sell T&N assets after pension offer snub

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Federal-Mogul, the engineering company whose bankruptcy in the US is threatening the pensions of thousands of workers at its subsidiary Turner & Newall, is sizing up a sale of its UK businesses.

Federal-Mogul, the engineering company whose bankruptcy in the US is threatening the pensions of thousands of workers at its subsidiary Turner & Newall, is sizing up a sale of its UK businesses.

A statement from the group over the weekend said the company, along with its administrators, was considering carrying out a "market test" of its UK assets, meaning it will in effect hoist a "for sale" sign over the businesses to see what price they could fetch.

The move follows the rejection by the independent trustee of the pension scheme on Friday of a $130m (£71m) offer from Federal to top up the company's pension fund. The trustee, Alexander Forbes, wants an ongoing commitment from the company to provide £29m to the pension fund every year, on top of its current contribution levels, to secure the future of the scheme. If it were wound up now, it would fall £875m short of what was needed to fund the pensions of 40,000 workers and former employees of Turner & Newall.

Even though pension funds are ranked third in the line of creditors when a company goes bust, the administrators, Kroll Associates, and the trustee believe the pension scheme could claim more from a sale of the UK businesses than the $130m offered by Federal. Estimates suggest the UK businesses could be worth up to $1.2bn. In a statement at the weekend, Kroll said: "The assets of the company should support a significantly higher dividend to the pension scheme than the sum offered by Federal-Mogul and its principal creditors."

But Federal-Mogul is standing firm on its original $130m offer, and is confident that pricing up the UK assets will shoot down beliefs that a break up of the business will lead to a bigger payment to the pension scheme. Its statement said: "A market test will demonstrate the fairness of what was offered to UK creditors, including the pension scheme."

Federal-Mogul claims its $130m offer would leave the pension fund 88 per cent funded, which is "better than many pension schemes in the UK, and the scheme would have the opportunity to benefit from future stock market growth and increases in interest rates".

Selling the UK assets is likely to be opposed by trade unions, who would fight to protect jobs and pension rights. Negotiations on funding the pension scheme will continue this week.

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