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Morrisons

Clayton, Dubilier & Rice (CD&R) has reaffirmed its commitment to safeguard the Morrisons’ pension schemes after trustees charged with protecting the funds called for further guarantees ahead of any private equity takeover.

A letter published yesterday warned a deal by either CD&R or the Fortress-led consortium in their current form would “materially weaken” the security of the two pension schemes holding the savings of more than 80,000 current and former supermarket workers.

In response, CD&R pointed to its announcement on Friday, when it tabled a new, debt-fuelled £7bn offer and matched several commitments already made by Fortress around protecting the supermarket group’s property estate and workers’ rights.

CD&R said it recognised the strength of Morrisons’ heritage and the legacy of Sir Ken Morrison.

The PE firm added it also had a long history of “successfully partnering and caring for the wide stakeholder constituencies of its portfolio companies”, including current ownership of Motor Fuel Group and past backing of B&M Bargains.

The statement said if its takeover was successful then the pension rights of all of Morrisons’ management team and employees would be “fully safeguarded” and it did not intend to make any changes to benefits provided by the schemes.

Prior to the new accepted offer from CD&R, discussions between the pension trustees and Fortress had been ongoing but talks with CD&R have not had time to get fully underway yet.

CD&R described an introductory meeting as “positive” and added dialogue was now “progressing”.

“CD&R understands and accepts that the trustees consider this dialogue is likely to extend to considering arrangements, which provide additional security to the schemes through an appropriate mitigation package,” the firm said.

“Given their position as important stakeholder in Morrisons, CD&R looks forward to further positive engagement with the trustees and to providing the appropriate support to the schemes and its members.”

Morrisons’ two retirement schemes are currently in surplus on an ongoing basis but are still dependent on the backing of supermarket group.

Trustees are worried under the current terms of the offers from CD&R and Fortress there isn’t sufficient protection for the almost 86,000 members if Morrisons was to go bust, with the schemes ranking as unsecured creditors in the event of a corporate failure, meaning they would have to wait for banks and lenders to be repaid first.

The trustees are specifically concerned about the amount of debt to be racked up by Morrisons in a PE takeover, the increased burden of servicing that borrowing and also future corporate activity, including refinancing and restructuring.

The schemes do not currently have sufficient resources to buy annuities for all the members in the event of a winding-up, with an estimated shortfall of £800m.

Trustees said in the letter it expected, under the current funding arrangements, to be able to close the shortfall within a decade.

Steve Southern, chairman of trustees for the Morrison’s Retirement Saver Plan and the Safeway Pension Scheme, added: “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.”

The schemes had aggregate assets of approximately £5.5bn in total as at 31 May 2021.

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