The Takeover Panel has published a consultation on proposed changes to the Takeover Code, which would compel organisations that launch a takeover bid to disclose their plans for the target organisation’s pension scheme.
The proposals would ensure that the provision of the Takeover Code, which relate to the employees of the target company, would be extended to apply also to the retired employees and beneficiaries of the pension scheme, as well as the scheme’s trustees.
The proposals do not include giving pensioners or trustees a say on whether the takeover should go ahead or on how pension schemes should be funded should the acquisition go through.
The proposals stated: “The Code Committee wishes to make clear that, if these proposals are implemented, it considers that their collective effect would be limited to creating a framework within which the effects of an offer on the offeree company’s pension scheme(s), which could comprise either a defined benefit or defined contribution or both, could become a debating point during the course of the offer and a point on which each of the offeror, the board of the offeree company and the trustees of the pension scheme(s) could have an opportunity to express views.
“This should help to ensure that the effects of the offer on the pension scheme(s) could be discussed by the relevant parties at an early stage, with the result that any issues that might arise as a consequence of potential change of the control of the company could then be considered by shareholders in the offeree company and others.”
Darren Philp, director of policy at the National Association of Pension Funds (NAPF), said: “This is a welcome step. The panel agrees with us that some of the powers that relate to employees should be extended to trustees of the company pension scheme.
“If implemented, this would enable trustees to get much more information about the bidder’s intentions for the pension scheme.
“This is important because it gives trustees the information that they need, empowering them to ask the right questions and effectively represent the interests of those in the pension scheme, both savers and pensioners.”
Read also Mergers and Acquisitions Supplement 2011
Read more articles on pension schemes
The Takeover Panel’s proposal will provide many pension scheme trustees with earlier awareness of M&A activity and the intentions for their pension scheme. This will provide them with more opportunity to review and raise any issues or objections to future deals.
It remains to be seen what impact the change will have on the level of deal activity. Trustees aren’t being afforded any new powers to prevent a deal taking place and the acquirer will be bound by their disclosed intentions for only a short period, generally twelve months.
Therefore, in many instances the disclosure might equate to little more than an intention to continue funding the pension scheme in line with existing agreements, which in any event are subject to triennial review.
Having said this, there will be greater emphasis on potential acquirers having a very early focus on managing pensions (and wider employee relations) issues. Pensions continue to be an emotive topic in the UK, as well as being financially material both for employers and individual employees. Engaging early with trustees and pension scheme members will therefore be key.
Maintaining positive open and honest conversations with plan trustees, members and the broader workforce will go a long way to maintaining staff motivation, remembering that it is ultimately employees who drive a business forward and allow value to be added through M&A.