Pension Corp buys final vestige of GEC with £400m takeover of Telent

Telent, the last remaining vestige of the former industrial giant GEC, has agreed a £400m takeover by a specialist pension fund manager in what amounts to the largest transfer of pension liabilities in the UK to the secondary market.

Telent is the rump of the old Marconi business, most of which was sold to Swedish telecoms equipment giant Ericsson in 2005 for a knock-down price. Telent, a small network services company, took on the company's giant pension fund, which has 62,000 members and is currently worth £2.5bn, with a view to transferring the liabilities of the fund to a specialist in the secondary market.

After considering a number of options over the past year, Telent has succumbed to a 600p-a-share takeover from Co-Investment No.5 LP – a special acquisition vehicle established by Pension Corporation, the Guernsey-based pension fund manager run by ex-Duke Street chairman Edmund Truell and backed by the likes of Royal Bank of Scotland, HBOS and Swiss Re.

Pension Corp, which recently conducted similar deals to buy the liabilities and business of off-licence chain Threshers and the Thorn conglomerate, has already purchased a stake of over 26 per cent in Telent from hedge fund Polygon.

"The strength of Telent's UK pension fund is vitally important to over 62,000 people; a legacy from what was once the second largest industrial company in the UK, Mr Truell said, adding that Telent's management, led by Mark Plato, is to concentrate on running the telecoms services business as opposed to worrying about the giant pension fund.

John Devaney, Telent's chairman, urged investors to agree to the "compelling" offer. Shares in Telent added 15 per cent on the back of the deal to end up at 587p, still below the 600p a share offer.

The agreed deal will put and end to Telent's rocky history as a listed company after the company found itself in the middle of a tug of war between two hedge funds last year. The company had agreed a near-£350m takeover by Fortress Investment Group before Polygon built a large stake in Telent and blocked the deal, much to the frustration of the company's management team.

At issue were hundreds of millions of pounds held in an escrow account designed to ensure that the pension fund stayed fully funded, with the hedge funds eager to tap into those funds.

Charlotte Crosswell, a partner and head of business development at Pension Corp, said that the fund was currently in surplus but that it was unlikely any money could be taken out of the escrow account – which currently holds over £500m – for years.

The deal will attract the scrutiny of the pensions regulator and Pension Corp will also need to meet with the trustee board of the pension fund to explain its plans. Ms Crosswell said that Pension Corp had completed a number of similar deals that have been approved by the regulator.

Andrew Reid, head of corporate consulting at Watson Wyatt, said that the deal would give Pension Corp management of pension assets worth more than £5bn. "It is another significant step in the development of the secondary market for pension liabilities," he said.