Changes to the Takeover Code, which come into force on 20 May, will give pension scheme trustees new rights to be involved in the takeover process. Going forward, trustees must be provided with key information on the offer and given the opportunity to publish their opinion on the impact it will have on the scheme. Although the changes will not give trustees a seat at the negotiation table, trustees will at least have an opportunity to have their say, which may influence the takeover discussions and in turn the outcome for the pension scheme and its members.

The changes to the Takeover Code, which regulates the conduct of UK listed company acquisitions, are intended to give trustees similar rights to those currently afforded to a target company’s employee representatives. The aim is to “ensure that the effects of the offer on a pension scheme could be discussed by the relevant parties at an early stage, with the result that any issues which might arise as a consequence of the change of control of the company could then be considered by shareholders in the offeree company and others”.

The key provisions are as follows.

  • The new obligations apply to schemes sponsored by the target company (or any of its subsidiaries) which provide some or all of their benefits on a defined benefit basis.
  • Trustees must be provided with financial information on the offer, details of how the offer is being financed and details of the bidder’s intentions in relation to the pension scheme.
  • A bidder must state its intentions on employer contributions, the accrual of benefits for existing members and the admission of new members, and will be bound by its statement of intention for 12 months (unless there is a material change of circumstances).
  • Trustees should be provided with the same documentation that has to be made available to employee representatives ie. the announcement which commences the offer period, the announcement of a firm intention to offer, the offer document, the target board circular in response to the offer document, any revised offer and the target board response.
  • Trustees will have the right to give their views on the effect of the offer on the scheme, although there is no obligation on the trustees to respond. The trustees’ opinion will either be appended to the target company’s response to the offer or published on a website, with the target announcing that this has been done. While there is no requirement for the bidder to comment on the impact of the takeover on covenant, the trustees may wish to give their opinion on covenant as part of their response.
  • Any agreement reached between the bidder and the scheme’s trustees does not have to be published unless it qualifies as a material contract of the bidder.

In order to provide an opinion on proposed takeover proposals, trustees will require to take legal and actuarial advice. They may in addition require advice on the impact the takeover will have on the employer covenant. Unlike the position for employee representatives, the costs of obtaining such advice will not be paid for by the target company and will remain the responsibility of the trustees.

The changes come into force on 20 May and will give trustees the right to publish their opinion on the effects of an offer even if the offer documents were published prior to that date.