Uniq way of dealing with a pension-scheme crisis

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The Independent Online

The chilled foods business Uniq took a major step yesterday towards avoiding being crippled by its pension scheme obligations. The company, formerly known as Unigate, plans to hand over nine-tenths of the shares in the company to its pension scheme in return for the scheme relinquishing its claim on the company.

"We have concluded that a deficit-for-equity swap is the right answer," said Geoff Eaton, the chief executive. "It's the best we can do under very difficult circumstances."

The deal has been agreed with the trustees but has yet to be approved by the Pensions Regulator, although the regulator has been closely involved in the process.

Uniq's problems began a decade ago when the former dairy giant sold its milk and cheese business but kept hold of the pension scheme. The scheme has 21,000 members, almost all of whom are former employees, including thousands of Unigate milkmen. Uniq, which now focuses on chilled salads, desserts and sandwiches for major high-street retailers such as M&S, employs just 2,200 people at its head office in Gerrards Cross, Buckinghamshire, and factories at Minsterley, Spalding, Evercreech and Northampton.

The imbalance between workers and pension-scheme members has led to the scheme building up a deficit of about £436m. Uniq's previous attempt to resolve things in the summer was slapped down by the Pensions Regulator, but it believes the deal announced yesterday will get the go-ahead. "The regulator has given us a positive comment so we are confident," Mr Eaton said. "We hope to have things tied up by around next February when we publish our full-year results."

As part of the deal, the pension scheme would in effect be transferred out of Uniq to a new company, which would overcome a rule that stops a pension scheme from investing more than 5 per cent of its assets in its sponsoring employer. The scheme would also be given an option to sell a proportion of shares back to Uniq for up to £30m – cash that would come from extra borrowing and the sale of its overseas interests last year.

The Pensions Regulator refused to be drawn on whether the proposal would be approved but a spokesman said: "The progress made by the company and trustees and the attention given to our feedback are encouraging. We will give formal consideration to a clearance application when this is submitted."

Asked why Uniq investors would want to agree a deal where they would give away 90 per cent of their holdings, Mr Eaton pointed out that analysts at Investec had estimated that Uniq's shares could be valued at 70p if the company was freed from its pension commitment, rather than the 7p they opened at yesterday.

The move would clear the way for Uniq to concentrate on growing the business rather than having to deal with the pensions problem. "I would tell shareholders it is better to have 10 per cent of something rather than 100 per cent of nothing," said Mr Eaton. Uniq shares climbed 13 per cent to 7.8p.

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