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Pension Funds

Melrose agrees to make £1 billion contribution to GKN pension funds if acquisition approved

A GKN Aerospace facility at Farnborough Airport near London

The trustees of GKN PLC's two U.K. pension funds reached an agreement with Melrose Industries PLC for contributions to be made to the funds should Melrose's acquisition of GKN be approved by shareholders.

A statement Tuesday said the trustees of the GKN Group Pension Scheme 2012 and the GKN Group Pension Scheme 2016, the total assets of which could not be learned, had reached an agreement on steps Melrose would take should Melrose's takeover offer be accepted by shareholders when they vote March 29.

Melrose agreed to make cash contributions to the pension funds of up to about £1 billion ($1.4 billion), comprising an initial £150 million contribution, of which about £60 million would be paid to the 2016 pension fund.

A more prudent funding basis was agreed to for the 2012 pension fund, using a discount rate of gilts plus 75 basis points, which would be achieved by doubling annual contributions to £60 million, the statement said.

The pension funds have a combined deficit of £1.1 billion measured on a gilts basis, said data provided by a spokesman for GKN's trustees.

These contributions would mean the pension funds "will be funded to a more prudent level and the enlarged Melrose group would provide strong covenant support to the schemes following the proposed acquisition," the statement added.

The agreement means "there are now firm commitments from both Melrose and GKN to support the pension schemes, whatever the outcome of the shareholder vote," said the chairmen​ of the trustees, in the statement. "We have taken extensive advice and are satisfied that both agreements provide appropriate mitigation to the schemes and that they are in the best interests of our members."