Pension ‘poison pill’ may derail Boots sale

The pension fund at Boots could act as a ‘poison pill’ that derails plans by its American owner to offload the high street chemist chain.

As revealed in The Mail on Sunday last week, healthcare giant Walgreens Boots Alliance (WBA) hopes to separate its international businesses as soon as possible. Boots and other operations in Europe are seen as a ‘distraction’ from the core business in the US, according to industry sources.

However, WBA is understood to have agreed a guarantee to Boots’ pension scheme trustees worth billions of pounds.

Key: WBA bosses Ornella Barra and husband Stefano Pessina at a masked ball

It wants any buyer to take on this obligation to pension fund members, but analysts say it is likely to prove a major stumbling block in a sale.

The pensions guarantee is thought to have been a factor in the failure of Walgreens’ attempt last year to find a buyer willing to meet its £7 billion asking price. ‘Walgreens has painted itself into a corner by providing a pensions guarantee,’ said one industry expert. ‘The last thing it wants is to sell Boots but still be on the hook for a significant pensions liability. It’s a huge poison pill.’

Stefano Pessina, 81, executive chairman and the company’s largest single shareholder, 69, who is the operations chief of the international division) is said to support a sale but be in no rush to do a deal.

Boots’ retirement scheme is believed to be well funded. A recent shortfall of around £120 million is thought to have been eliminated. But the pension scheme also matters because it could be bigger than the price Boots itself might fetch. That makes a disposal without a parent company guarantee for the scheme more complicated, and may deter any potential private equity buyers, sources added.

Strategy: Roz Brewer, CEO of WBA

It is not unusual for a defined benefit scheme that promises to pay a pension based on a worker’s final salary to have a parent company guarantee.

If ownership of a company changes, a pension scheme’s position and its members must be protected under law against any adverse impact.

Arrangements to protect members would normally involve agreement between the current owner, prospective owner and the scheme trustees.

Investors and directors want WBA – whose chief executive officer is Roz Brewer, 61 – to focus on a new strategy which includes moving the US pharmacy chain, the second-largest in that country, away from traditional retail and instead focusing more on the private healthcare market.Boots was one of the first pension schemes to shift out of equities into bonds to match its liabilities – the promise to pay future pensions – with its assets.

WBA declined to comment.

This post first appeared on Dailymail.co.uk