Pension trustees sound alarm over £7bn Morrisons bid: Takeover set to ‘materially weaken’ staff savings pots
The private equity takeover of Morrisons will ‘materially weaken’ staff retirement plans, trustees of its pension schemes have warned.
In a rare public intervention, they said the debt levels involved in the deal proposed by US buyout titan Clayton Dubilier & Rice (CD&R) posed a risk to the stability of employees’ savings pots.
The Morrisons Retirement Saver Plan and the Safeway Pension Scheme, which was picked up when Morrisons acquired Safeway in 2004, look after the retirement pots of around 85,500 current and former staff.
Pensions threat: The trustees of Morrisons pension schemes say the debt levels involved in the grocers’ private equity takeover posed a risk to the stability of employees’ savings pots
Both are well-funded, and are almost £700million in surplus, after years of regular contributions from the supermarket chain.
But trustees fear that all of this could be undone by CD&R’s controversial takeover – leaving workers in the lurch.
They have called on CD&R to give the schemes security over more of Morrisons’ properties, to bolster workers’ savings and give them more protection if the chain were to run into trouble.
By the numbers: Morrisons deal
- 85,500: Pension scheme members
- £682m: Surplus in the pension schemes
- £5.5bn: Total assets in the pension schemes
- £7bn: Size of CD&R’s bid for Morrisons
- 118,000 Number of current Morrisons employees
- 497 Number of Morrisons stores
Steve Southern, chairman of trustees for the schemes, said: ‘An offer for Morrisons along the lines of the current offers would, if successful, materially weaken the existing sponsor covenant supporting the pension schemes, unless appropriate additional support for the schemes is provided.
We hope agreement can be reached as soon as possible on an additional security package that provides protection for members’ benefits.’
CD&R is planning to pay £7billion for Morrisons through cash and debt.
But Southern pointed out that this debt would have priority over pension scheme funding, meaning that if Morrisons went bust, lenders would be able to claim any money before the pension schemes.
He added that Morrisons would also have to pay more interest on the debt, reducing the amount of cash available to put into pension pots, and that it could make future refinancings and restructurings more likely – kicking the pension schemes further down the list of priorities.
The trustees have no powers to veto a takeover. One insider said they could complain to the Pensions Regulator if CD&R proved uncooperative, but the deal’s fate is in shareholders’ hands.
The trustees had been hoping to get the pension schemes to a ‘buy-out’ deficit within the next ten years.
This would have taken another £800million – a sum which they expected to get to if Morrisons had remained independent.
Reaching this level would have allowed the trustees to hand the schemes to an insurance firm, giving members more stability.
John Ralfe, an independent consultant who has advised Morrisons on its pension schemes, said a cash injection by CD&R would be more helpful than security over properties.
He said: ‘The two schemes are in good shape, so the buy-out deficit is only £800million, not large in the context of the CD&R offer.
‘It shouldn’t be a deal breaker, but the trustees should expect hard cash not security over property.’
Morrisons’ board is recommending investors back a deal with CD&R, which has gazumped an offer by buyout funds, led by Fortress.
CD&R said it ‘looks forward to constructive engagement with the trustees in the future’.
Grocer heads for Footsie
Morrisons looks set to end its days as a listed company on the FTSE 100 as it is on course to rejoin the blue-chip index in a reshuffle next month.
Others set to be added include defence giant Meggitt, which like Morrisons is being stalked by private equity buyers, and Dechra Pharmaceuticals.
That would be after broadcaster ITV departs, while Just Eat Takeaway is being expelled due to its nationality being reassigned from the UK to the Netherlands.
Engineering firm Weir Group is also set for demotion.