Alliance Boots board takes flak from pension scheme chairman over KKR deal
LONDON (Thomson IM) - The board of Alliance Boots PLC came under attack today from the chairman of the health and beauty group's pension scheme, John Watson, for recommending an 11 bln stg offer from US private equity firm Kohlberg Kravis Roberts (KKR) and executive deputy chairman Stefano Pessina without ensuring the scheme's future planning and funding.
At the Court Meeting and Extraordinary General Meeting, convened to rubber stamp the 1,139 pence agreed offer, Alliance Boots' chairman Sir Nigel Rudd also drew flak from small shareholders opposed to the deal.
Their opposition was, however, in vain as the deal was overwhelmingly backed by investors.
Acceptance of the offer means Alliance Boots shares will de-list on June 28 -- the group becoming the first FTSE 100 company to fall into private equity hands -- less than a year after it was created through the merger of Boots Group PLC and Alliance UniChem PLC.
Watson, chairman of the Boots Pension Scheme since 1998, said he was 'disappointed' the board had backed KKR/Pessina's offer before agreement had been reached on how to fund the scheme's current deficit of 305 mln stg.
'I take no pleasure in coming to this meeting and asking a question,' he said, reiterating the trustees view that a new private owner taking on 8.2 bln stg of debt has 'serious implications' for the position of the scheme.
He said that, although meetings with KKR/Pessina were proceeding, no satisfactory agreement has yet been made.
'What will you (the board) do to influence ... to give the scheme the support it deserves,' he asked Rudd.
The chairman responded by saying he had been assured by KKR/Pessina that the Boots scheme will continue to be one of the best funded in the sector.
'You have my assurance that over the next two or three weeks I will be pressing for a resolution,' he said.
A spokesman for KKR/Pessina confirmed that talks with the trustees are continuing. 'We'd like to think that both parties are working to a constructive conclusion,' he said.
He declined to comment further. However, industry sources suggested the gap between what the trustees want and what KKR/Pessina are prepared to give is not huge -- tens of millions of pounds rather than hundreds of millions of pounds.
UPDATE - There is a piece about this in today's FT too -
The Kohlberg Kravis Roberts-led takeover of Alliance Boots looks poised to become a key test of the Pensions Regulator’s powers to protect company schemes after the buy-out was backed by shareholders but without any agreement on filling the fund’s deficit.
At a thinly-attended shareholder meeting on Thursday, John Watson, chairman of the board of trustees of the Alliance Boots pension scheme, said it and the consortium had not yet reached agreement on additional funding.
Mr Watson said the trustees “have made it clear that the borrowings in excess of £8bn being taken on to finance this acquisition have serious implications for the scheme”.
He said: “We have still not reached a satisfactory agreement, which inevitably gives trustees serious worries about the future.”
One pensions lawyer said the dispute was “shaping up to be the showdown at the OK Corral”.
Pensions lawyers believe that KKR, which has not yet received “clearance” for its transaction from the pensions watchdog, will challenge the latter’s ability to insist trustees negotiate up-front payments from employers to fund deficits.
The rules only apply to transactions that are structured to avoid paying pension liabilities.
The regulator recently issued guidance urging trustees to seek clearance – a procedure that absolves them of personal liability in the event the employer later becomes insolvent – when corporate transactions pile on heavy new debts.
However, lawyers said the regulator’s ability to do so, while enshrined in the general spirit of the Pensions Act of 2004, was not specifically written into it.