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Code Committee implements changes regarding pension scheme trustee issues

07 June 2013

Market reCap June 2013 edition 

Code Committee implements changes regarding pension scheme trustee issues

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On 5 July 2012, the Code Committee of the Takeover Panel consulted on various changes to the Takeover Code in relation to pension scheme trustee issues.

The consultation stemmed from various suggestions submitted to the Takeover Panel as part of the overall review of the Takeover Code prompted by the takeover of Cadbury plc by Kraft Foods Inc. Broadly, under the proposals the trustees of an offeree company’s pension scheme would be granted similar rights to those currently enjoyed by employee representatives. As a result of the consultation phase, the Code Committee has limited the proposed reforms in several significant ways.

First, the changes to the Takeover Code apply only in respect of a funded pension scheme sponsored by the offeree company, or any of its subsidiaries, which provides benefits, some of which are on a defined benefit basis, and which has trustees (or, in the case of a non UK scheme, managers). It was felt that defined contribution pension schemes were adequately covered by the existing disclosure provisions of the Takeover Code and that there is no debate to be had between the pension scheme trustees and the offeror in respect of the effect of the bid on the pension scheme, which is a key rationale for the changes.

In addition, the obligation of the offeror to clarify the effect of the offer on the offeree’s pension scheme(s) is limited to the impact on the benefits which the pension scheme provides to existing and new members. There is no obligation on the offeror to disclose the impact of the offer on the ability of the offeree to make future contributions to the pension scheme i.e. the impact on the offeree "covenant". Indeed, the offeror's disclosure obligation is limited to a requirement for the offeror to state its intentions with regard to employer contributions into the pension scheme, the accrual of benefits for existing members of the scheme and the admission of new members to the scheme.

In another retraction from the original proposals, the offeror is no longer to be obliged to state the likely repercussions of its strategic plans for the offeree company on the offeree company’s pension scheme. The Code Committee also concluded that it is not necessary to require the board of the offeree company to include in its circular its own views on the effects of the implementation of the offer on the pension scheme or on the likely repercussions of the offeror’s plans for the offeree company on the pension scheme. This is on the basis that the pension scheme trustees will be the persons best placed to opine on the effects of the offer on the pension scheme.

The pension scheme trustees’ opinion will be limited to the effects of the offer on the pension scheme(s), rather than the provision of financial advice in respect of the offer itself. However, the pension scheme trustees will entitled to opine not only on the benefit impacts to be disclosed by the offeror itself, as referred to above, but may also opine on the potential covenant impacts of the proposed takeover offer. It is important to note that there is nothing to stop the board of the offeree company from setting out its opinion on the effects of the offer on the offeree pension schemes.

One practical point that it is important for advisers to note is that they should treat pension scheme trustees in a similar manner to employee representatives. They should therefore send such trustees the announcement that commences the offer period, the Rule 2.7 announcement and the offer document (and any response documents). They should also ensure that trustees are informed of their rights under the Takeover Code.


Amerjit Kalirai is a Partner in the Corporate Group of Field Fisher Waterhouse LLP in London.