Uniq, the biggest supplier of sandwiches to Marks and Spencer, is to seek clearance from the UK Pensions Regulator to use a novel approach to close a deficit in its retirement scheme, which dwarfs the size of the company and could take 50 years to resolve.
The maker of chilled foods, which changed its name from Unigate in 2000 after selling its milk and cheese operations, has to plug a funding deficit in its defined benefit pension fund that is more than 17 times the size of its market capitalisation.
The scheme has 21,000 members, the vast majority of whom are former employees, including Unigate milkmen.
Uniq said yesterday it had reached an agreement in principle with the trustee of the scheme. Under its trust deed, the trustee has the power to wind up the scheme, which has no contributing members, crystallising a shortfall that stood at £436m in March 2009.
Uniq’s market capitalisation was £25m yesterday.
“We see this as the best route forward,” said Geoff Eaton, chief executive, who noted that, although the accounts certified Uniq as a going concern, its auditors wished to draw attention to the pension shortfall in the latest audited accounts. “This gives the best hope for the debt owed to the pension scheme to be paid.”
Under terms of the proposal, Uniq would transfer the assets and liabilities of the scheme to a dormant company and create a “firewall” around it. The trustees would no longer have a claim on any of the assets or cash flows of Uniq should they seek to wind up the scheme.
In exchange, Uniq proposes to sign a contract with the scheme under which it will make no contributions until 2013. Then, it will make annual contributions equal to 33 per cent of earnings before interest, tax, depreciation and amortisation, or £10m annually, closing the deficit over a 50-year period.
However, the firewall would give Uniq the ability to raise cash from shareholders, enabling it to buy businesses, which it could then run profitably, making the company much more stable and profitable.
Mr Eaton said Uniq was not currently paying dividends, but was contemplating doing so out of profits from the new businesses it acquired. The firewall prevents it sharing these with the scheme.
The Pensions Regulator declined to comment yesterday, noting that it is forbidden from commenting on any discussions with employers.
However, the proposal flies in the face of some of its guidelines. The regulator has called for shortfalls to be repaid within 10 years, although it has said it will grant forbearance under certain circumstances.
Advisers have generally interpreted this to mean 15 or even 20 years, not 50. Moreover, the regulator has warned repeatedly against transferring responsibility for a scheme to an entity with no business operations of its own.
This is to guard against companies reorganising their business to leave the pensions with an entity that later becomes insolvent and that has no claim on parent company assets.
Mr Eaton said that in the unlikely event of an insolvency, the firewall would disappear and the scheme could claim on all Uniq’s assets.
source: ft.com
