Private equity company says Morrisons takeover will not undermine pensions

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US private equity manager, Clayton Dubilier & Rice, (CD&R) says pension rights of all Morrisons’ managers and staff will be “fully safeguarded” when its planned takeover of the supermarket chain is complete.

It has reacted to concerns raised by trustees of the pension funds that the £7bn takeover of Bradford-headquartered Morrisons could “materially weaken” the security of its pension schemes.

CD&R has stressed it does not intend to make any change to the benefits provided by the pensions schemes.

It adds that it intends employer contributions to the schemes to continue in line with current arrangements and that it is looking forward to constructive engagement with the trustees in future.

CD&R’s response states: “Since its initial proposal was submitted to the Board of Morrisons on 14 June 2021, CD&R has consistently acknowledged and appreciated that the schemes and the trustees are important stakeholders in Morrisons.

“Since that time CD&R has sought guidance from the Board and management team of Morrisons on the appropriate opportunity to engage the trustees to explain to them CD&R’s proposal for Morrisons and its strategic vision for the business and intentions for stakeholders.

“CD&R met the trustees on 17 August 2021 to initiate this dialogue and process. CD&R believes that it had a positive discussion with the trustees and the dialogue is now progressing.”

The board of Morrisons last week agreed to a takeover by CD&R, superseding a £6.7bn rival offer led by Fortress Investment Group that it had previously accepted.

But Steve Southern, chair of trustees for the Morrisons pensions schemes, has told Sky News: “An offer for Morrisons structured along the lines of the current offers would, if successful, materially weaken the existing sponsor covenant supporting the pension schemes, unless appropriate additional support for the schemes is provided.

“We hope agreement can be reached as soon as possible on an additional security package that provides protection for members’ benefits.”

His concerns relate to schemes holding £5.5bn of assets which, as of April 2019, had more than 80,000 members.

The schemes are in surplus but might face a shortfall of £800m if, for example they were to be wound up or the company behind it goes bust.

That figure represents the additional sum that would be required to buy annuities from an insurance company to cover the benefits the schemes are due to pay out.

Trustees of the schemes fear that, in the case of both the CD&R and Fortress bids, the financial support from Morrisons underpinning them could be weakened by various factors.

Those include the loading up of further debt on Morrisons – from creditors who would have a higher priority claim than the pension schemes against its assets should it go bust.