Code Committee implements changes regarding pension scheme trustee issues
07 June 2013
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.
Kalirai is a Partner in the Corporate Group of Field Fisher
Waterhouse LLP in London.