Companies planning a takeover bid will have to disclose impact on target's pension scheme

Out-Law News | 10 Jul 2012 | 11:13 am | 2 min. read

Companies planning a takeover bid will have to set out the likely impact of their proposal on the target company's pension scheme under proposed changes to the Takeover Code.

The amendments, currently out for consultation (20-page / 109KB PDF) by the Takeover Panel, will also give the trustees of that pension scheme the same rights to receive documents relating to the takeover as employee representatives. This includes the announcement which begins the offer period as well as the announcement of a firm intention to make an offer, the offer document and any revised offer document and any board circulars in relation to the takeover.

The Takeover Panel, which creates and enforces a Code governing how companies can and cannot be taken over, said that its proposed amendments would "facilitate a debate" during the course of an offer. However, it stressed that the changes would not give trustees the power to block a takeover if no agreement could be reached on future pension scheme funding arrangements.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that increased transparency with regards to any pension schemes involved in company takeovers was a "sensible policy".

"Particularly where a defined benefit pension scheme with a deficit is involved, trying to keep the trustees out of the loop is asking for trouble," he said. "Companies that fail to enter open discussions with trustees early on in takeover negotiations risk finding themselves at the wrong end of the Pensions Regulator's powers. If these proposals are given the go-ahead, fewer deals should be scuppered at the eleventh hour because disgruntled trustees suddenly learn that companies have been trying to seal a deal behind their backs."

The proposed changes follow lobbying from the pensions industry during the Takeover Panel's 2011 review of takeover regulation. At the time, the Panel said, trustees and their representatives had requested that similar information to that which employee representatives are entitled to receive should also be disclosed to trustees. However, the suggestion was "outside the scope" of that consultation process, it said.

The Code states that a formal offer to take over a company should set out the proposed new owner's "intentions with regard to the continued employment of the employees ... including any material change in the conditions of employment", as well as the "likely repercussions" of its strategic plans for the target company on employment and business locations.

If accepted, the proposed amendments would require the bidding company to state "its intentions with regard to the offeree company's pension scheme(s) and the likely repercussions of its strategic plans for the offeree company" on those schemes. A bidding company would also be required to make a 'negative statement' as part of its offer if it does not intend to make any changes to the relevant pension schemes.

The target company would also have to set out its views on how the offer will impact on its pension scheme as part of its board circular on the proposals.

Under the Takeover Code, the company making the offer or the board of the target company would be committed to the course of action set out in any statement for a period of 12 months from the date on which the offer period ends, unless there has been a "material change of circumstances".

The Panel is also seeking views on loosening the existing regulations which require a targeted company to restate financial forecasts, and widening the number of companies protected by the Code by dropping the requirement that companies not listed on the main stock exchange must have their office and directors registered in the UK in order for the Code to apply. All three consultations close on 28th September.