Following reports that it has been asked to pay at least £100 million to cover a pension scheme liability, Permira has suspended its £940 million (€1.4 billion; $1.7 billion) offer for UK retailer WH Smith. WH Smith made a statement to the London Stock Exchange saying it was “highly unlikely” that Permira would pursue its offer.
Faced with a total deficit of between £200 million and £250 million, the trustees of the WH Smith pension scheme insisted Permira make a substantial cash payment to help fund the deficit. A report in The Times added that the trustees were also concerned that Permira’s debt backers in the deal would have a stronger claim over the company’s assets than members of the pension scheme in the event of a collapse.
The Times reported that Permira is no longer being granted privileged information about WH Smith, after more than two months of negotiations. Permira is quoted as saying that a dialogue with the trustees is continuing and that it will “revert to the company in due course”.
The deal is believed to represent the first occasion upon which a takeover bid has been derailed by problems surrounding a company’s pension provision. But it is not expected to be the last as a result of new rules introduced by the UK Government in its Pension Bill in June 2003, which force companies to meet all their pension liabilities in full.
In May this year, the British Venture Capital Association said it had written to the Government asking for it to drop the proposed amendments, which are due to be enforced in January 2005. The powers would date retrospectively back to June 2003, and could force directors and shareholders of a company to make good pension shortfalls if the company purposely disposes of money that should have gone to the pension fund.