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A Seat At The Table?

A Seat At The Table?

Pension scheme trustees will get a more prominent role in listed company takeovers following changes to the City Code on Takeovers and Mergers (“the Takeover Code”) which come into effect on 20 May 2013.

The changes are designed to increase transparency in these deals and give trustees more information at an early stage.  Broadly, they are intended to give the trustees of the target’s defined benefit pension scheme(s) the same rights in relation to a proposed takeover as employee representatives. 

In any corporate transaction, the trustees’ desire is to have “a seat at the table”.  So do these changes allow them to pull up a chair?

The changes include:

• giving the trustees the right to append an opinion on the effects of the offer upon the pension scheme to the target company's board circular on the offer (although the trustees will be responsible for the cost of advice required to verify the information included in that opinion);
• providing the trustees with certain offer documents, currently only provided to the target's employee representatives; and
• providing the trustees with details of the bidder's position and the impact of their offer on matters such as employer contributions, benefit levels and funding any deficit.

In addition, where an agreement between the bidder and the trustees of the target’s pension scheme is a material contract of the bidder, it must be published on a website in the same way as any other material contract entered into in connection with the offer.

The amendments to the Takeover Code mean trustees will have greater access to key information and the opportunity to voice their opinion.  However, it is interesting to note that the amendments originally proposed have been revised to water down the powers of the trustees and reduce the duties of the companies involved in the takeover.  The impact has been diluted despite comparatively few respondents in the consultation process lobbying for such change.  For example, it was originally proposed that the bidder should make a statement about the impact of its offer on the target’s covenant (the future ability of the target to meet its funding obligations to its pension scheme).  This was removed in the final amendments – a particularly significant revision given such information will be a key consideration for trustees.

The Code Committee justified the changes to the original proposals saying that the intention was merely to “create a framework within which the effects of an offer on the offeree company’s pension scheme can become a debating point during the course of the offer and a point on which the relevant parties can have an opportunity to express their views”.

Ultimately the changes fail to provide any real protection for the pension scheme.  It can only be assumed that the changes to the initial proposals have been made to preserve the overriding purpose of the Takeover Code – to protect the interests of the company shareholders, not the members of the pension scheme.  Unless trustees have specific powers under their scheme documentation to impact the transaction (usually unlikely), they will still need to try and negotiate some form of protection for the pension scheme with the bidder or rely on the Pensions Regulator’s anti-avoidance powers.

Jennifer Chambers

Burness admin