With effect from 20 May 2013, the UK Takeover Code provides that trustees of defined benefit pension schemes whose sponsoring company is the subject of a takeover bid are entitled to:
- receive information about the bidder’s plans for the scheme and
- publicise to the target company’s shareholders their views on how the takeover will affect the scheme.
The intention is to provide trustees with rights similar to those available to employee representatives and to enable debate to take place between the trustees and other interested parties at an earlier stage in the takeover process, although it is not intended to require that agreement be reached on the funding of the target’s scheme(s) before an offer can become unconditional.
The Code applies to offers for public companies registered in the UK, the Channel Islands or the Isle of Man and they cover all schemes of the target and its subsidiaries, not just UK schemes.
The bidder and the target will be required to make available to the trustees:
- the announcement that commences the offer period,
- the announcement of a firm intention to make an offer,
- the offer document and
- the target board circular in response to the offer document.
The Takeover Code already required offer documents to include detailed financial information about the bidder and the financing of the offer. Under the new rules, the bidder will also have to state in the offer document its intentions with regard to:
- employer contributions into the target’s scheme(s), including deficit contributions,
- the accrual of benefits for existing members and
- the admission of new members.
This statement of intention will be binding on the bidder for a period of 12 months (or any other period that it specifies), unless there is a material change of circumstances.
The Code Committee does not believe that it would be appropriate to require the bidder to make statements with regard to the impact of the bid on the covenant of the target, i.e. an assessment of the future ability of the target to meet its funding obligations to the pension scheme. However, the trustees will have the right to have their opinion as to the effects of the offer on the pension scheme appended to the target’s board circular (or, if it is not provided in time to be so appended, published on a website). Although the trustees will be required to meet the costs of any advice required in formulating this opinion, in practice this will be a cost of the scheme that will be met by the sponsoring company in due course.