Boots chairman: let regulator decide on pensions

Sir Nigel Rudd, the chairman of Alliance Boots, has called for the UK Pensions Regulator to be given greater power to set the contributions private equity firms must make to a company’s pension scheme on acquiring the business.

In a letter to the Financial Times, Rudd argued this would act in the interests of shareholders by preventing pension fund trustees from delaying a buyout deal, and also by making sure that the buyer provided adequate funding for the scheme – without additional cost to shareholders.

Rudd defended the board’s decision to sell Alliance Boots to Kohlberg Kravis Roberts before the pensions issue had been resolved, suggesting that otherwise the company’s shareholders may have had to foot the bill. “To do otherwise would have allowed KKR to deduct the additional payments to the pension fund from the price agreed,” Rudd argued. “Furthermore, the trustees would not have had an incentive to settle quickly, which could have jeopardised the deal,” he added.

He argued it was time for a “clearer system” where the Pensions Regulator could decide on the appropriate contribution and “has the power to enforce an agreement” on both sides. This was important as advisers to the pension fund trustees would always push “to settle on the most conservative criteria”, he suggested.

Since agreeing a £11.1 billion (€16.5 billion; $22.2 billion) deal for Boots, KKR has been locked in negotiations with the company’s pension fund trustees, who were seeking a £1 billion contribution to top up the scheme. The deal involves a huge debt package of more than £8 billion, and trustees were concerned that if the company went bankrupt, they would be left at the back of the queue of creditors. The issue was only resolved last week, when KKR agree to provide the scheme with an acceptable funding package.

Rudd said the board took a calculated gamble that “the combination of a strong chairman of trustees, public scrutiny and the presence of a pensions regulator would produce a satisfactory result.” The Boots scheme is now “more secure than most schemes in the FTSE,” he claimed.

However, the Pensions Regulator may be wary of receiving enhanced powers, since it could become liable for compensation demands if a scheme is left under-funded as a result of its rulings.