The trustees of the Alliance Boots pension scheme believe the private equity bidders planning to take over the company are willing to wage a “war of attrition” in an attempt to pay as little as possible into the company’s pension funds.
A spokesman for the trustees said they were “frustrated and disappointed” with Kohlberg Kravis Roberts and Stefano Pessina, Boots deputy chairman, who have agreed a deal to pay £11.1bn for the chemist and drug wholesaling group
The bidders have insisted since their first approach for the company in March that they were keen to reach an “amicable” agreement with the trustees to underline their commitment to the workforce.
It has emerged, however, that there is a huge gap between what the trustees want and what the bidders are prepared to offer. Last weekend former Boots director John Watson, head of the trustees, wrote to the scheme’s 67,000 members to say he wanted KKR to commit £1bn to the scheme. Mr Watson said the huge debt – more than £8bn – being used to finance the acquisition made the company’s future less secure and told members he wanted a cash injection – understood to be about £500m – and “appropriate new security” to cover the remaining £500m. The cash would allow the scheme to meet its obligations to its members and pensioners if the bidders run into financial problems and are unable to make any further contributions.
However, KKR is understood to have suggested an upfront payment of little more than £50m. It is also reluctant to provide the additional security the trustees are seeking.
The trustees’ spokesman said that many staff had contacted them with their fears over the security of their pensions. “Their feeling is that all the directors have sorted themselves out with millions of pounds but there is not the same interest in the pensions of the staff.”
In takeover documents published last week it emerged that Alliance Boots directors will share more than £10m as a result of the takeover, with £6.5m going to chief executive Richard Baker.
According to existing pension regulation the new owners and the trustees have 15 months to reach a deal and funding agreements can stretch over 10 years.
The trustees believe KKR favour a 10-year contribution plan, but that it is far too risky given the scale of the debt, and interest payments, the company will face.
The trustees’ spokesman said: “Mr Watson is very conscious that he has the future financial security of 67,000 people resting in his hands.”
Julia Finch
Saturday May 12, 2007
The Guardian