Pension shadow looms over Sainsbury’s deal

Sep 17 2007 by Iain Laing, The Journal

SUPERMARKET giant Sainsbury’s is expected to open its books to Qatari-backed suitor Delta Two this week, but the £10.6bn deal could flounder on a pension deficit “poison pill”.

Pension trustees at the UK’s third largest supermarket chain are understood to be planning to force the Qatari fund to pump billions of pounds into the Sainsbury’s pension scheme.

The trustees are thought to be preparing to mount a campaign similar to that involved in the Alliance Boots takeover, which saw the company pension scheme funding take centre stage in the deal.

Sainsbury’s scheme trustees are understood to have a clause in the pension trust that allows them to demand increases in company contributions on change of ownership.

The report also suggests that the trustees have hired a law firm to advise them, alongside the same pensions boutique used by Boots’ trustees in their battle to secure member retirement benefits.

Boots buyers Kohlberg Kravis Roberts and then deputy chairman Stefano Pessina eventually struck a deal with the guardians of the pension scheme after weeks of talks, which saw them pay £418m in instalments over 10 years to plug the retail and pharmaceutical group’s pension hole.

They also agreed to set aside a £600m “security package” to protect the pensions of Boots’ 66,000 scheme members.

Sainsbury’s is believed to have a pension deficit of £103m, down from £658m last year.

Delta Two has been locked in talks with the Sainsbury’s board for weeks and is widely reported to have run up against resistance from the Sainsbury’s board over a number of issues, including debt levels involved in any bid.

There has also been speculation that the Qatari-government may be asked to underwrite the £6bn of debt which Delta Two would need to finance a bid as a form of reassurance for the Sainsbury’s board.