Morrisons bidder Clayton Dubilier & Rice has reached agreement “in principle” with the pension trustees of the Bradford-based supermarket giant to provide “additional security and covenant support” as the private equity firm seeks to clinch the £7 billion deal ahead of a rival consortium led by Softbank-owned Fortress Investment Group.
On August 24, the pension trustees had warned in a letter to the company that a takeover by either of its two potential buyers would “materially weaken” the security of the company’s £5.5 billion pension schemes if no additional protection was agreed.
However, Clayton, Dubilier & Rice announced it has reached agreement with the trustees of the Morrisons Retirement Saver Plan and the Safeway Pension Scheme “on the terms of a comprehensive mitigation package to provide additional security and covenant support” to the schemes.
The trustees said in a statement: “The trustees are pleased to confirm that they have reached an agreement in principle with CD&R in relation to a package of measures to support the schemes’ journey to ‘buy out’ should the CD&R Offer complete.
“This package includes additional security to be contributed to the existing pension funding partnership structure in the form of further properties with an appropriate release mechanism to allow for a gradual release of that additional security as the schemes progress towards ‘buy out’, together with enhanced governance provisions in respect of the schemes.
“The trustees welcome CD&R’s constructive engagement and are pleased with the progress made to date.
“They look forward to finalising the contractual details with CD&R ahead of the shareholder meeting in order to secure additional protection for members’ benefits under the schemes.
“The trustees also look forward, should the CD&R Offer complete, to continuing to work with CD&R and Morrisons in the future to ensure scheme benefits remain protected.
“Having received professional advice, and having regard to the potential impact of the CD&R offer and their respective fiduciary obligations to the beneficiaries of each of the schemes, the trustees consider that the package of mitigation measures, once contractual details are finalised, will provide sufficient and appropriate support for the schemes.”
Morrisons chair Andrew Higginson said: “The Morrisons board is pleased that the trustees and CD&R have engaged constructively and have now reached an agreement, which safeguards the interests of the members of Morrisons’ pension schemes.”
Terry Leahy, senior adviser to CD&R funds, said: “We are delighted to have reached agreement with the trustees, providing additional security and covenant support to the schemes.
“We thank the trustees for their constructive engagement, and the positive outcome underscores CD&R’s approach as a responsible investor and emphasises the respectful approach CD&R would take to its wider stakeholder responsibilities and commitments.”
The £7 billion takeover battle for Morrisons looks set to be decided by the rarely used auction process.
Morrisons has said it is in talks with CD&R, Fortress and the UK’s Takeover Panel about an auction to settle its future.
Morrisons has said that as neither bidder had declared its offer final, it is talking to both of them and the Takeover Panel about “an orderly framework for the resolution of this competitive situation” – which would normally be an auction.
Fortress, a subsidiary of SoftBank Group, is backed by a consortium that includes the Canada Pension Plan Investment Board (CPP Investments), Koch Real Estate Investments and Cambourne Life Investment, an investment vehicle of Singapore’s sovereign wealth fund GIC.