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Pension Funds

U.K.’s Pensions Regulator wants input on Melrose acquisition of GKN to protect pension funds

The Pensions Regulator in the U.K. wants Melrose Industries PLC to get clearance from TPR to acquire GKN PLC as the "leverage involved in the proposed takeover of GKN is likely to have a detrimental impact" on GKN's pension fund, TPR said in a letter Tuesdayto Frank Field, chairman of the Work and Pensions Committee.

Melrose Industries first proposed acquiring the global engineering firm in January. Since then, the trustees of GKN's pension fund have warned that a bid for the company should account for the 2.5 billion ($3.4 billion) pension plans' 53.2% funding ratio and put appropriate protections in place to offset any weakening that leverage creates for the pension covenant under the new owner, according to the documents published on the committee's website. A pension covenant is the employer's legal obligation and financial ability to support its pension funds now and in the future.

Melrose offered a voluntary cash contribution of 150 million to the GKN pension funds within 12 months of the takeover deal being finalized​ to help fill the 2.2 billion pension fund deficit, according to the documents.

In response to the letter, Mr. Field said Tuesday: "A proportionate, mandatory clearance check (against avoiding paying pension obligations) as we recommended would be valuable in cases like this. Melrose claims an impeccable record in protecting pension rights. The surest way to demonstrate its commitment in this case would be to apply voluntarily for clearance."

The committee has previously called for TPR to have the power to demand mandatory clearance of corporate transactions that might have a detrimental impact on pension funds, along with punitive fines for avoiding pension obligations. The U.K. government's Business, Energy and Industrial Strategy Committee is holding a hearing Tuesday about Melrose acquiring GKN.