Pensions regulator nationalises ‘M&A’

The introduction of a pensions regulator has ‘nationalised M&A activity’,
CBI director general Digby Jones has said.

Speaking at last week’s CBI conference, Jones said changes to the pensions
environment have led to the regulator becoming a third party to all
transactions. The statement reflects broader fears among corporate financiers,
who now have to consider the pensions obligations of target companies when they
are handling deals.

David Lane, a partner at actuaries Lane Clark and Peacock, said the interests
of the pension scheme, as an unsecured creditor in the company, was now as
important as buyers and sellers when thrashing out a deal. Lane attributed this
to the increased power of trustees, who can now get a better deal for the
pension fund, in terms of increased contributions and additional security.

Lane said: ‘Pension funds have become a key issue for dealmakers. Pensions
can be a huge structural issue at the core of any negotiations.’

Howard Leigh, director at Cavendish Corporate Finance, said the growing
involvement of the regulator and trustees complicated the deal making process.

‘The involvement of the regulator and trustees in deals has slowed down the
process,’ Leigh said.

Under the Pensions Act the regulator has the power to issue a ‘contribution
notice’, requiring companies to pay lump sums into pension schemes.

Companies can avoid a ‘contribution notice’ by volunteering to secure a
clearance statement from the regulator. To do so, companies have to gain the
approval of their deal structure from pension fund trustees. This provides
trustees with the opportunity to leverage a stronger agreement for the fund and
introduces a new set of interests that must be accommodated by the deal process.

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