Boots pension fund guardian attacks takeover deal

The guardian of the Boots pension fund attacked the company today for backing a £11.1bn (€16.3bn) takeover before agreement had been reached on funding for future retirement benefits.

John Watson, who is chairman of trustees for the Alliance Boots pensions scheme, raised his concerns at a gathering of shareholders to back the takeover by deputy chairman Stefano Pessina and buy-out group Kohlberg Kravis Roberts.

It later emerged that shareholders had voted overwhelmingly in support of the takeover of Alliance Boots, which will see a FTSE 100 company fall into private equity hands for the first time.

Following the meeting, one shareholder, Martin Simons, said: “I am wearing my purple tie in mourning. To allow this great company to fall into the hands of venture capitalists is quite appalling.”

The pension scheme trustees have already intimated that a current review of the scheme will show a £305m (€448m) deficit.

They are concerned that the £8bn (€11.75bn) of debt KKR is taking on to finance the deal will jeopardise the security of the scheme and are pushing for up to £1bn (€1.5bn) in total in case company contributions dry up.

Although the pension trustees have no power to veto the deal, if an agreement is not reached it will be the first time that a FTSE 100 company will be taken over without the approval of its pension fund trustees.

Mr Watson told the meeting: “I am disappointed that the board agreed to recommend this offer before an agreement on pensions had been reached.

“We have made it clear that the borrowings taken on to finance the acquisition will affect the scheme.

“We still have not reached an agreement. What will the board specifically do to give the scheme members the support they deserve?”

The Alliance Boots pension fund has 66,000 members, including 16,000 employees who are still making contributions. The GMB union has called on the pension fund trustees to ensure enough money is paid into the fund to cover the full wind-up value of all the pension promises to employees and pensioner members.

Alliance Boots chairman Nigel Rudd sought to allay fears over the future of the scheme.

“The fact of the matter is that the Boots’ pension fund is one of the best run and best funded schemes in the FTSE 100 Index. I can assure you that for the next few weeks we will be urging KKR and Stefano Pessina to come to some arrangement.

“You have my assurance that I will be pressing very hard for an agreement.”

He added that should no agreement be reached, the Pensions Regulator would become involved.

The takeover could be completed on June 26 if shareholders, as expected, back the deal when the outcome of today’s vote is released later today. Alliance Boots shares will be cancelled on June 28.

KKR and Mr Pessina first approached the Boots board in March regarding a £9.7bn (€14.2bn) offer for the company. Following a rejection from the board, KKR outbid fellow buy-out firm Terra Firma, which had conditionally offered £10.8bn (€15.9bn) for Alliance Boots in partnership with medical charity Wellcome Trust.

The takeover comes less than a year after the company was created through the merger of Boots and drug wholesale giant Alliance UniChem.

Paul Maloney, national officer of the GMB union, said: “The Pensions Regulator must now get involved in this unsatisfactory situation and rule on the pensions funding strategy needed to protect members of the Boots pension fund and insist that this strategy is followed.

“The Regulator has powers to do this and GMB will continue to pursue matters to ensure that these powers are used. Boots, now saddled with borrowings of £8bn (€11.7bn), is a completely different sponsor of the pension fund and the Regulator cannot ignore this fact.

“The Secretary of State for Work and Pensions must also intervene to ensure that all legal powers are used to protect members of the fund from the piranhas of private equity.”

The union will publish a report on the equity industry’s links to insolvent pension funds at its annual conference in Brighton, England on Sunday.