Melrose Industries PLC, a London-based manufacturing company, plans to contribute about £100 million ($138 million) to its GKN U.K. defined benefit funds through an asset sale.
The firm said it had agreed to sell its Nortek Air Management business to a Chicago-based firm for about £2.6 billion.
The contribution would reduce the GKN U.K. pension funds' deficit to about £200 million. The deficit was about £1 billion when Melrose acquired engineering firm GKN in 2018, Melrose said in a news release Monday.
Melrose had made £270 million in cash contributions to the GKN U.K. DB funds as of Dec. 31, according to its latest annual report.
The four GKN pension funds are the most significant in the group, the annual report said. The funds had total assets of £2.6 billion as of Dec. 31, up from £2.2 billion the previous year. The net deficit was £199 million as of Dec. 31, compared with £468 million as of Dec. 31, 2019. The pension funds are closed to new participants and future accruals.
The report said Melrose made £111 million in ongoing contributions to the group's plans in 2020, including £60 million to the GKN U.K. pension funds.
An agreement is in place for Melrose to contribute 10% of the net proceeds from the disposal of GKN businesses and 5% of the net proceeds from non-GKN businesses to the pension fund, the news release said. It has also committed to contribute £270 million to the U.K. pension funds when affiliate Powder Metallurgy is sold.
"These commitments cease when the funding target, which has been agreed with the trustees, is achieved, being gilts plus 25 basis points for the GKN U.K. 2016 plan and gilts plus 75 basis points for the GKN Group Pension Schemes (Numbers 1-4)," the release said.
As of Dec. 31, the funding target for the GKN U.K. 2016 plan had been achieved, with the funding ratio at 115%, while the deficit for the remaining plans was about £370 million, with a funding ratio of 93%, according to the annual report.
"The ambition is for the pension scheme to be fully funded, and Melrose will continue to fund the schemes at a high level in order to reduce them further," a spokeswoman said. "Melrose has an impeccable record in managing pension liabilities in its acquisitions and has left every one of them in surplus on disposal."
