The pair advised the trustees on last-minute talks with KKR to guarantee the future of the retailer’s pension fund in an instruction that not only demonstrates the growing pressure on private equity deals in the UK but the increasing power of pensions funds in takeovers in general.
Ashurst head of corporate Adrian Clark and acquisition finance partner Mark Vickers were working with Sackers pensions partner Peter Lester on behalf of the trustees to try to reach an agreement. As Legal Week went to press it appeared that the trustees had secured an 11th-hour accord, with KKR, which is being advised by Clifford Chance and Simpson Thacher & Bartlett, on Tuesday reported to be offering a £418m injection over 10 years, plus a further £600m “security package”.
Had the talks failed, the trustees threatened to use this week’s scheduled court hearing (set up to approve the takeover through a scheme of arrangement) as an opportunity to block the deal.
Few lawyers had rated the trustees’ chances of success but that they were willing to try and that negotiations went on this late in the deal shows just how much power the trustees have.
All creditors are legally entitled to make representations at the hearing but, to date, no pension fund trustee has ever gone down this route. The representation would have been entirely separate to the work of the Pensions Regulator, which can in rare circumstances force a purchaser to increase its contributions.
Pensions lawyers have been seeing their role on transactions expand significantly over the last few years since the 2004 Pensions Act. With the success of Boots’ trustees and this week’s news that the Pensions Regulator has demanded a £91m payment from Sea Containers, the first time a
One pensions partner admitted that the publicity over Alliance Boots is leading the firm to consider using the same approach to help trustee clients drum up more funding for their schemes.
As one corporate partner told Legal Week: “It is good news for pension lawyers. I doubt the trustees could stop the scheme going through but it is a question of how much more money KKR was willing to put in the pot. What is interesting is that people were willing to carry on negotiating about this so far in.”
There could also be wider ramifications for private equity deals generally. The sector is already facing widespread criticism for asset-stripping and, as the Boots buy-out is both highly leveraged and the first-ever private equity-backed acquisition of a FTSE 100 company, it has been widely viewed as a test case.
The Boots fund has only a modest deficit of around £305m but, given that the deal is backed by more than £8bn of debt, the trustees wanted a package of guarantees worth around £1bn; with reassurances about assets they were entitled to and future payments. One private equity partner commented: “It is such a high-profile test case, both because of the actions of the trustees and because, as the first private equity takeover of a FTSE 100 company, there will be huge ramifications if it goes wrong. KKR could not afford to get it wrong.”