Wm Morrison Supermarkets pension plan trustees seeking assurances before shareholders vote on bids


The agreed bid for Wm Morrison Supermarkets PLC (LSE:MRW) by Clayton, Dubilier & Rice has run into a potential snag over the company’s pension scheme.

The trustees of the Morrisons pension plan have raised concerns over the strength of the pension scheme under new owners, whether it be the preferred bidder of the Morrisons board, US private equity group Clayton, Dubilier & Rice (CDR) or rival bidder and fellow private equity predator, the Fortress Group.

A statement from the trustees said that while the pension schemes (for Morrisons and Safeway (NYSE:SWY), the supermarket chain it acquired decades ago) are currently in surplus on an ongoing funding basis and also benefit from security in the form of freehold properties held within a pension funding partnership structure, the schemes currently do not have sufficient resources to secure, or “buy out”, scheme benefits with an insurance company.

The schemes’ long-term objective in each case is to reach full funding on a “buy out” basis in less than 10 years, which the trustees currently believe is possible without requiring cash contributions from the Morrisons group beyond those already agreed.

History suggests, however, that new private equity owners might load up the company with debt and/or sell off the property assets. The trustees and its advisors are alert to the possibility of the introduction of additional debt secured with a priority claim ahead of the pension schemes on the majority of the Morrisons group assets, the related increased debt service burden and potential future corporate activity, including the potential for refinancing and restructuring.

The trustees are seeking agreement from the bidders on additional protection for the schemes.

“A helpful Introductory meeting took place between CD&R and the Trustees immediately prior to the announcement of their offer on 19th August and the Trustees look forward to productive discussions leading to agreeing an appropriate mitigation package with CD&R as soon as possible (and with Fortress should it continue to pursue an offer for Morrisons),” the statement from the trustees said.

The trustees want a pension agreement signed before any shareholder meeting to consider offers for Morrisons.

“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,” said Steve Southern, the chair of the trustees.

Shares in Morrisons were down 0.2% at 291.6p, 6.6p above CD&R’s agreed offer.


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