News analysis: Legal experts are split on whether changes to the takeover code coming into effect today have any impact on the power of pension schemes whose sponsors are the target of a merger or acquisition.
The changes include giving trustees of defined benefit pension schemes the right to publish their opinion in the target company’s circular to shareholders, as well as obliging the bidder to provide them with information about the takeover.
But the bidder will not be required to state its view regarding the impact of the offer on the employer covenant, and will not need to reach an agreement with the trustees about funding the company’s pension promises by a specific date.
Anne-Marie Winton, partner at law firm Nabarro, said the changes were significant. “If [trustees] say, ‘We think the bidder is a very weak company, we have taken professional advice about that and it’s going to have a really bad impact on the scheme’, do you think the market is going to support the takeover?”
“It gives the trustees a very loud voice that they may otherwise not have, [and a] public forum for making their views known.”
But Zoe Lynch, partner at law firm Sackers, was less sure about the impact of the revisions. “While it is going to give them a place at the table or a formal voice, most trustees of schemes who are now included in the takeover code will probably have got their own bargaining seat at the table anyway,” she added.
Philip Jelley, of counsel at Norton Rose, said the changes should increase the chance that trustees can influence decisions around the possible sale or merger of their sponsoring employer.
“However, the circular will be sent to shareholders, and the shareholders will probably be more concerned with the commercial advantages of approving the takeover or not, rather than the direct effect they have on the pension scheme.”
Regardless of the changes, there is consensus among legal practitioners that schemes are likely to need external advice to help them comment on the possible impact on the employer covenant, as the bidder will not have to set out their view.
“So in order for the trustees to give their opinion on the takeover, they are probably going to have to take advice on what the impact is on the employer covenant. These things are very complicated,” Winton added.
Involving the trustees is commonplace in the industry already, said Ewan Nelson, principal associate at Eversheds. “Essentially this is a regulatory fitting for what has been market practice for a number of years. Certainly under bigger deals trustees have been involved.”
