The trustees of the pension schemes at Morrisons have warned that a private equity takeover could “materially weaken” the security of the funds unless further protections were agreed.
The warning comes after the Morrisons board switched its support from an the bid by the Fortress-backed consortium to a new £7bn offer from Clayton Dubilier & Rice.
Morrisons two retirement schemes hold savings of more than 80,000 current and former supermarket workers.
In a letter yesterday, the trustees said the schemes were currently in surplus on an ongoing basis but were still dependent on the backing of Morrisons.
It added the schemes do not currently have sufficient resources to secure, or ‘buy out’, benefits with an insurance company, with a notional shortfll of £800m.
The letter said until the schemes reached their long-term objective to be fully funded on a ‘buy out’ basis there remained a risk if the company behind it was to ever go bust.
Trustees of the scheme expressed worries about both offers from Fortress and CD&R, warning if no additional protection was agreed a deal would “materially weaken the existing sponsor covenant supporting the schemes as a result of several factors”.
Those factors include the supermarket being loaded up with additional debt by a new PE owner, which would have a priority claim ahead of the schemes on the majority of Morrisons assets in the event of any insolvency.
“The trustees are therefore focussed on agreeing additional security to provide covenant support for the schemes on their journey to ‘buy out’,” the letter said.
Prior to the new accepted offer from CD&R last week, discussions had been ongoing with Fortress but the trustees have not had the same opportunity to hold talks with CD&R yet.
“The trustees are of the view that an agreement on the mitigation to be provided for the schemes should be settled with CD&R or Fortress (as appropriate) prior to any shareholder meeting to consider any offer for Morrisons.”
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.
The FTSE 100 edged 0.2% higher to 7,136.86pts this morning but elsewhere it is very quiet as the summer continues.
Morrisons shares nudged up slighlty to 291p, indicating the market still expects Fortress to return with a bid to beat the current 285p offer from CD&R.
Early risers today include PZ Cussons, Devro, Marks & Spencer and McBride, while Virgin Wines, Naked Wines, Marston’s and Glanbia were among the fallers.
Yesterday in the City
The FTSE 100 made more gains yesterday, rising 0.2% to 7,125.78pts.
After a bumper start to the week, investors in Sainsbury’s took some profits yesterday, sending the stock back down 4.9% to 323.5p.
Tesco also slipped back by 0.4% to 250.6p.
Other food and drink fallers included Naked Wines, down 2.3% to 845p, Imperial Brands, down 2.2% to 1,524.5p, and Finsbury Food Group, down 2.2% to 90p.
Berlin-based Delivery Hero was among the risers, up 5.6% to €124.40 ahead of its half-year results release on Thursday.
Marks & Spencer was also up 4.2% to 170.7p, SSP Group increased 3.8% to 276.2p and Glanbia rose 3.6% to €15.18.