Friday, 23 March 2007

Sainsbury's update

Plenty of coverage about the private equity-backed bid for Sainsbury's today. The FT says that the trustees of the supermarket chain's pension fund are pushing for up front cash payments or assets. It suggests the consortium behind the bid have offered £300m to £500m.

The following sentence in the FT article made me chuckle.

The trustees are understood to be concerned whether a private equity buyer would be willing or able to make additional contributions over the next 60 years.

Surely it's tongue in cheek? Even the loudest champions of private equity don't claim that its time horizons stretch that far ahead!

There is also a good bit in the Lombard column comparing the situation at Sainbury's with previous bids for M&S, WH Smiths and Corus. It argues that Corus is the most directly comparable example.

Trustees of the British Steel pension scheme had to weigh the threat to the fund’s covenant with its corporate sponsor and the risk that the UK’s Pensions Regulator would find it hard to chase down an Indian (or Brazilian) owner against the fact that the Anglo-Dutch steelmaker’s future prosperity depended on finding a suitable international partner. Tata Steel, the eventual winner, granted enough concessions and was deemed sufficiently benevolent to outweigh the concerns.

In the case of Sainsbury, a change of control is not essential to the retailer’s future. In fact, a trustee with a duty to current and future pensioners might say that a foreign leveraged vehicle was replacing benevolent British family shareholders, aggravating fears about the strength of the fund sponsor and its accountability to the UK pensions watchdog. That should make the talks much tougher than at Corus.

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