Case for a Robust Defence

Article excerpt


Tax hints Scotch mist PRIVATE equity used to be notorious for its cavalier behaviour towards company pension funds. Fortunately, this is one aspect of 'locust' behaviour which is no longer possible.

The advent of the independent Pensions Regulator, created in 2004, means that no deal can be done until the interests of current and future retirees are looked after.

As we report today, the pension fund deficit is the main reason for the delay in the CVC led consortium offer for supermarket group J Sainsbury.

The present hole in the Sainsbury pension fund is estimated at [pounds sterling]300m and the regulator is thought to be arguing for twice this amount. This would add approximately 27p to an offer price widely expected to be 550p a share.

There will also be pension fund issues to be dealt with at Alliance Boots if Stefano Pessina and his collaborators Merrill Lynch and KKR press ahead with a higher offer, having been told to take a hike at [pounds sterling]10 a share.

Boots is slightly different because of the decision by its pensions guru, John Ralfe, to switch the fund into bonds before the great equity tumble of the early part of the decade.

Now there is concern at Boots that while the switch into bonds did protect the fund, future pensioners have missed out on the equity market recovery and face a shortfall.

The bid delays forced by negotiations with the pension trustees and the regulator are far from being a sideshow as we learned when the need to close a [pounds sterling]250m gap in the WH Smith pension fund saw private equity outfit Permira off the field of battle. Nevertheless, to rely on the pensions defence to see off predators, is not enough.

Neither Alliance Boots nor J Sainsbury has yet to ripple any muscles in the effort to defend themselves against predators. At least Cadbury Schweppes came up with a plan when an intruder came on the share register, even though its split looks forced. It would be nice to think that Sir Philip Hampton at Sainsbury and Sir Nigel Rudd at Boots were planning aggressive defences in the manner of Cadbury and Marks & Spencer in 2005. Lying back and thinking of England ought not to be an option.

THE remarkable aspect of next Wednesday's Budget, Gordon Brown's 11th and last, is how little leaking there has been. Since official purdah was ended in 1997 it has been open season in the runup to budgets with most of the secrets buried in the small print. …