• Pensions Briefing - Takeover Code Consultation - PCP 2012/2 Proposed Pension Changes
  • September 4, 2012
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Executive Summary
    Following a number of responses from pension schemes to an earlier consultation (PCP 2011/1), the Code Committee of the Takeover Panel (Panel) has produced consultation paper PCP 2012/2.

    If implemented, the proposed amendments would require:

    • details of the bidder’s intentions in relation to the target company’s pension scheme; and
    • information usually provided to employee representatives,

    to be provided to the trustees of the target company’s pension scheme. If there is more than one scheme, the proposals will apply to each scheme.

    In addition, the board of the target company must append to its circular a separate opinion from the trustees of the target company’s pension scheme on the effects of the offer on the pension scheme, provided such opinion is received by the board in good time.

    There will also be a requirement for the summary of any agreement between the bidder and the trustees of the target company’s pension scheme to be published.

    The proposal that the Panel should be required to refer a takeover to the Pensions Regulator automatically if a definitive position has not been reached, by a particular point in the offer timetable, on the funding commitments in relation to the target company’s pension scheme, has been rejected and is not part of the consultation.

    The consultation ends on 28 September 2012.

     


    Proposed Amendments to the Takeover Code (Code)
    Proposals to change Rules 24.2(a) and (b) of the Code would have the effects set out below.

    The bidder should be required to state in the offer document its intentions with regard to the target company’s pension scheme and the likely repercussions of its strategic plans on the scheme. If a bidder:

    • has no intention to make any changes in relation to the target company’s pension scheme; or
    • considers that its strategic plans for the target company will have no repercussions on the target company’s pension scheme,

    the bidder should be required to make a statement to that effect.

    Proposals to change Rule 25.2(a) of the Code would require that the board of the target company include in the target board circular its views on:

    • the effects of implementation of the offer on the target company’s pension scheme; and
    • the probable repercussions of the bidder’s strategic plans for the target company on the target company’s pension scheme.

    Any statements would be regarded as committing that party to that course of action for a period of 12 months from the date on which the offer period ends, or for such other period as is specified in the statement, unless there has been a material change in circumstances.

    Further changes to the Rules of the Code are proposed, requiring the bidder and the target company to make available to the trustees of the target company’s pension scheme all the documents that they are currently required to make available to the target company’s representatives. These documents include:

    • the announcement which commences the offer period (Rule 2.12(a));
    • the announcement of a firm intention to make an offer under Rule 7 of the Code (Rule 2.12(b);
    • the offer document (Rule 24.1(a));
    • the target company board circular response to the offer document (Rule 25.1(a));
    • the revised offer document (Rule 32.1(b));
    • the target company board circular in response to any revised offer document (Rule 32.6(a)); and
    • any document required to be sent to shareholders in a target company and persons with information rights under proposed new Rule 27.1(b) of the Code.

    The board of the target company must append to its circular a separate opinion from the trustees of the target company’s pension scheme on the effects of the offer on the pension scheme, provided such opinion is received in sufficient time to be included prior to publishing (Rules 25.9/32.6).

    Under the amended Rule 2.12(d), when the target company provides a copy of an announcement from the bidder which either commences an offer period (Rule2.12(a)) or, is an announcement of a firm intention to make an offer (Rule 2.12(b)), to the trustees of the target company’s pension scheme, it must at the same time inform the trustees of the right to have their opinion noted when the target company’s subsequent circular is published in accordance with Rule 25.1. This will also apply to revised offers (Rule 21.1(b)).

    There will also be a requirement for the summary of any agreement between the bidder and the trustees of the target company’s pension scheme (which would include an arrangement regarding the future funding of the target company’s pension scheme) to be published.

    The suggestion that the Panel should be required to refer a takeover to the Pensions Regulator automatically if a definitive position has not been reached by a particular point in the offer timetable on the funding commitments in relation to the target company’s pension scheme has been rejected. This is because the Panel considered that sufficient protections already exist and, therefore, this is not part of the consultation.

     


    Comment
    The changes proposed in the consultation will be welcomed by pension scheme trustees, as they should result in trustees receiving greater information, and an indication of the bidder’s intentions towards the target company pension scheme. In addition, unless there was a material change in circumstances, the bidder’s statement of intention with regard to the target company’s pension scheme would be binding for a period of one year from the offer date, which will give comfort to scheme members.

    From a bidder’s perspective the changes are likely to be less welcome. Often bids are based only on publicly available information. More detailed due diligence in relation to the target’s pension scheme may be required at an earlier stage in order to formulate a firm intention. Whilst early dialogue with the trustees would provide this, it is likely that in practice the bidder’s statement as to its intentions in relation to the target’s pension scheme will not be very detailed and may result in no more than the current status quo being maintained for a year.