Uniq, the chilled foods specialist that was once the UK’s largest milk and cheese distributor, said that it had finally reached an agreement to cede 90 per cent of its own shares to its pension scheme in order to escape a retirement burden that is many times the size of the company’s own market capitalisation.
The agreement, announced late on Wednesday, follows protracted negotiations over nearly 18 months between the company, its shareholders, lenders, the UK Pensions Regulator and the Pension Protection Fund.
Uniq said that it had received agreement from the regulator and the PPF and must still seek approval from shareholders, who would retain 9.8 per cent of the company. Uniq will make an additional payment of £14m to the scheme.
After the deal is complete, Uniq shares will trade on the Aim junior market.
For their part, scheme members are likely to lose about 30 per cent of their pensions because most will no longer be eligible for annual increases in line with inflation.
The PPF said that it would raise no objections to the deal as long as it was completed before March 31 2011, when new increases would be due.
Geoff Eaton, Uniq’s chief executive, said that he was hopeful that by the time the pension scheme completes a two-year assessment period after the deal, it would have been able to sell its shares in Uniq at a price high enough to avoid falling back into the PPF and would instead offer benefits slightly better than those guaranteed by the scheme.
In April 2009, the shortfall in the scheme’s pension fund stood at £436m. As of Wednesday, its market capitalisation stood at roughly £6m. The pension scheme has about 21,000 members, many of them former milkmen who delivered dairy goods to the nation’s doorsteps.
The company has become emblematic of employers who shrank their businesses through wholesale disposals but retained the liabilities of the pension scheme at a time when many believed the asset pool could go on producing outsize investment returns indefinitely.
Amid low inflation and new accounting rules requiring more clarity on liabilities, such companies were saddled with significant burdens, not benefits. As a result, the Uniq terms are likely to be studied closely by pension advisers seeking to help their own clients minimise the burden of legacy pension promises.