Matthew Swynnerton takes a closer look at the revised Takeover Code and its implications for pension schemes

The Takeover Code is a set of rules and principles produced by the Panel on Takeovers and Mergers. It set out an orderly framework for the conduct of takeovers to which the code applies, and is designed to ensure shareholders are treated fairly. The panel effected a number of amendments to the code in relation to the role of pension scheme trustees in takeovers, following a consultation on proposed changes to the code undertaken by the panel in July 2012.

The proposed changes were intended to broadly offer trustees of an offeree company’s pension similar rights to those afforded to an offeree company’s employee representatives. The consultation also intended to create a framework for the impact of the offer on the pension scheme to become a debating point during the course of the offer.

But not every proposal was accepted, and this article reviews the changes to the code.

Which schemes are covered?
The new provisions of the code apply to any occupational pension scheme that:
• is a funded scheme sponsored by the offeree or any of its subsidiaries, including partly-owned subsidiaries
• provides pension benefits, some or all of which are on a defined benefit basis
• has trustees (or, in the case of a non-UK scheme, managers)

What information must trustees receive?
The code now requires trustees to be provided with:

• financial information on the offeror
• details of how the offer is being financed
• appropriate disclosures of the offeror’s intentions with regard to the pension scheme

Offerors are now also required to state their intentions with regard to:

• employer contributions into the pension scheme (including the current arrangements for the funding of any scheme deficit)
• the accrual of benefits for existing members of the scheme
• the admission of new members to the scheme

However, the revisions stopped short of requiring an offeror to provide statements on how the proposed transaction will impact on the employer covenant.

Do trustees get a say on the offer under the code?
Certain announcements relating to the offer, the offer itself and the circular the board of the offeree company publishes, setting out its views on the offer, will have to be made available to the trustees. Trustees have a right to state their opinion on the effects of the offer on the scheme.

Whilst the right to express an opinion is said to be limited to the effect of the offer on the scheme, the code does not restrict trustees from also opining on the offeror’s intentions regarding the pension scheme (as described above), or on other matters, such as the impact on the employer covenant.

Who covers the costs of a trustee opinion?
While the offeree is responsible for the costs of publishing the trustees’ opinion, neither the offeror nor the offeree is responsible for the costs incurred by trustees in preparing and verifying
the opinion.

Can trustees enter into an agreement with the offeror?
Although the code usually prohibits offer-related agreements without panel consent, agreements between trustees and the offeror are now permitted where the agreement concerns scheme funding.

How does the code relate to moral hazard and clearance applications?
A proposal requiring the panel to refer certain matters to The Pensions Regulator (TPR) was rejected on the grounds that clearance is a voluntary process and therefore clearance applications remain a separate consideration.

What happens next?
The new code provisions came into effect on 20 May 2013. Trustees of relevant schemes should be mindful of the code’s new provision in the event of a takeover. While TPR’s moral hazard powers and its emphasis on engagement with trustees will ordinarily mean that the offeror and offeree would enter into discussions with the trustees in any event, trustees may nevertheless find it useful that the need to provide information and to engage with them has now been formalised in the code.

Written by Matthew Swynnerton, partner in the employment group, DLA Piper

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