The proposed acquisition of Scott Paper Co. by Kimberly-Clark Corp. will result in combined pension assets of nearly $2 billion if, as expected, the two funds are united under one roof.
Neither company is willing to discuss how the two funds will be handled following the acquisition, which is expected to close during the fourth quarter. But industry sources expect the $1.1 billion Philadelphia-based Scott plan and the $984 million Irving, Texas-based Kimberly-Clark plan to be merged. They also expect the Kimberly-Clark staff and pension policy to dominate the merged fund.
The two funds are both aggressively invested, with Kimberly-Clark 77% invested in overall equities and Scott Paper, 73%. However, there are distinct differences in their use of non-U.S. equities. Kimberly-Clark is only 12% invested in non-U.S. equities, while Scott Paper has 32%.
In addition, Kimberly-Clark manages more than $400 million internally, while Scott Paper has no internal management.
Andrew Yost, pension fund director at Scott, declined to comment, citing company policy. Michael Mathis, director of investor relations at Scott, said pension issues haven't yet been addressed.
A spokeswoman at Kimberly-Clark cited Securities and Exchange Commission "quiet time" regulations prohibiting public discussion of matters relating to the merger until the deal closes and a prospectus is issued late in the third quarter.
But a financial executive at Scott said he expects the plans of both companies to be combined.
"It just makes sense administratively, but to my knowledge there are no plans for that right now," he said.
He said once the acquisition has closed and a transition team is put into place, the combination of the pension plans will be addressed. "I expect that a consultant will be asked to review the benefit schedules first and then a full actuarial review will take place. The combining of assets will be a part of that process I would expect," he said.
Both companies rely largely on a single senior staff member to oversee their respective pension operations - Mr. Yost at Scott and L. Robert Frasier, assistant treasurer-asset management at Kimberly-Clark. Mr. Frasier was out of town on business and unavailable for comment.
The two funds have no investment managers in common, according to the lists published in the 1995 Money Market Directory of Pension Funds and their Investment Managers.
Outside observers predict the prevailing pension operation will be that of the acquirer - Kimberly-Clark. Eventually, they said, the Scott plan assets will be molded to resemble the more conservative Kimberly-Clark asset mix.
One consultant noted Kimberly Clark will have to look at Scott's 7% holdings in real estate and 5% in mortgages "to see if it is counter to their investment philosophy.... and decide if they want to hold on to it or look for an opportunity to get out." Kimberly-Clark's pension fund doesn't appear to invest in real estate or commercial mortgages.
Both funds are well funded, according to their 1994 annual reports to shareholders. Scott had plan assets in excess of accumulated benefit obligations of $47.6 million at the end of 1994. and Kimberly-Clark was overfunded by about $87.9 million.
Both companies maintain defined contribution plans. Scott's 401(k) plan has about $460 million in total assets. The asset mix is 32% invested in company stock, 25% in other domestic stock, 41% in guaranteed investment contracts and 2% in international equities.
Participants in the Scott plan with company stock will book a gain from the acquisition in which all Scott shareholders will receive 0.765 shares of Kimberly Clark common stock for each share of Scott common stock at the price on the date of closing. If the transaction had closed at stock prices in the days following the acquisition announcement, the Scott plan would show a profit of about $15 million.
The Kimberly-Clark defined contribution plan has 90% in company stock, 2% in other domestic stock, 2% in domestic fixed-income and 6% in GICs, according to data it supplied for Pensions & Investments' Top 1,000 pension funds survey.