Report emphasises that the solution to Uniq’s defined benefit scheme deficit will not be appropriate in most cases
In 2011 an innovative solution was found to the potentially insolvent situation in which Uniq plc found itself, with a pension deficit in its defined benefit scheme that was many times the market capitalisation of the company. As we reported at the time:
“Uniq…had a defined benefit pension scheme that was heavily in deficit and which it was unable to fund – at around £430 million, the deficit was vastly bigger than Uniq’s own market capitalisation.
The first stage of addressing that deficit was completed by scheme of arrangement in March 2011, when 90.2% of Uniq’s shares were acquired by a special purpose vehicle, Angel Street, that became responsible for the defined benefit scheme. The commercial effect of this restructuring was that Uniq became owned by its pension scheme, bar 9.8% which remained with Uniq’s shareholders, and Uniq was freed from further obligations to the pension scheme.”
Greencore Group plc subsequently made an agreed cash offer to acquire all of Uniq’s issued share capital, and so the pension scheme received the consideration payable by Greencore for the 90.2% of shares that were owned by the pension scheme SPV.
This was the first time that a listed company’s pension scheme had acquired, and then sold, 90% of the company’s equity as a means of addressing the deficit in that pension scheme.
Pension Regulator’s report emphasises uniqueness of Uniq approach
The Pensions Regulator released a short report on 2 March 2012 on this solution to the Uniq pension scheme’s problems. The report emphasises that Uniq and its pension scheme were in a Catch-22 situation: The only thing that could solve the scheme’s funding problems would have been a capital raising by Uniq – and such a capital raising was impossible because of those funding problems:
“…it was clear that [Uniq's] ability to [support any of the long-term recovery plans that were considered] was dependent on its ability to raise fresh capital. There was recognition on the part of all parties that the Scheme was the [Uniq's] dominant creditor. In the event of insolvency, any shareholder value would be wiped out due to the size of the debt owed to the Scheme. As a consequence, the economic reality was that the Scheme effectively owned [Uniq]. The threat that the pension deficit posed to [Uniq's] solvency made it too difficult to find suitable terms for raising fresh capital.”
The realisation that the scheme effectively owned the listed company was the first step in the restructuring of Uniq by a scheme of arrangement, so that the pension scheme SPV then owned 90.2% of the equity, which it then sold to Greencore in the agreed cash offer.
The Pension Regulator in its report emphasises that the Uniq solution will not be suitable in most cases, and that its preferred approach is to see a long-term funding plan put in place by the scheme sponsor.
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