Green faces £1.6bn pension fund shock in bid for Marks & Spencer

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The Independent Online

Philip Green may have to find up to £1.6bn extra to plug the deficit in Marks & Spencer's pension scheme if he succeeds in his £9.1bn bid for the retailer.

The figures are bound to anger Mr Green and could undermine his bid. Calculations by M&S's pension trustees show that the effect of Mr Green taking control of the company and assuming high levels of borrowings could massively increase the pension deficit and how much the company would have to pay into the £2.6bn pension fund.

M&S has a deficit of £185m. As the group has a good credit rating, it is assumed it can plug the debt over 12 years. The annual payment into the fund is £105m. The fund is invested 60 per cent in equities, 40 per cent in debt.

However, the trustee rules mean that if Mr Green wins M&S, with a company that is likely to have nearly £8bn debts, the scheme has to have a much more conservative asset allocation and assume the deficit is paid off more quickly.

In the most conservative scenario, the fund would be wholly invested in bonds and the deficit would have to be paid off in three years. In that case, the deficit rises to £1.8bn and the company would have to pay £785m a year to clear it. More likely would be to shift the asset allocation to 80 per cent bonds and clear it in five years. In that case, the deficit would be £1bn and Mr Green would need to pay £350m a year.

Mr Green has been demanding figures from the pensionfund and sent an angry letter to David Norgrove, the chairman of the fund's trustees, claiming he has not acted fairly. "They are supposed to be independent," said Mr Green. "They aren't behaving that way."

Stuart Rose, M&S's chief executive, will reveal tomorrow how he can release up to £3bn of cash from the group's property and financial services assets. He is also expected to promise cost savings of more than £100m a year.

M&S is expected to unveil a property revaluation from £2.1bn to up to £4bn after a report by surveyors DTZ. Mr Rose is expected to say he will release up to half the property's value through sale and leaseback deals.

He will also free £1bn from the financial services business by securitising the credit card and insurance portfolio. These moves will enable him to promise £3bn of cash that can be returned to shareholders.

Paul Myners, M&S's chairman, will say that these moves justify the company's decision to reject the 400p a share Mr Green has promised if M&S recommends his potential offer.

Two shareholders in M&S ­ Brandes with 11.7 per cent and Schroders with 1.8 per cent ­ have given irrevocable undertakings to support a 400p offer from Mr Green.

Mr Green has also secured support from investors with an interest in another 8 per cent of the stock.

Other shareholders have told The Independent on Sunday that they are unhappy that M&S rejected Mr Green's 400p a share offer out of hand and may consider calling an EGM to oust the directors.