banking eraGuernsey-based defined benefit (DB) pension scheme buyout
specialist Pension Insurance Corporation (PIC) is making waves in
the UK with a strategy more akin to that of an investment bank.
PIC’s approach is simple: acquire an entire company with an
attractive DB pension scheme, sell off the operating assets to a
third party and retain the scheme.
PIC’s first move using this strategy was in June this year when it
acquired Threshers Group, a national liquor retailer operating
about 2,000 stores. Within two weeks of the acquisition PIC had
sold off 75 percent of Threshers to private equity firm Vision
Capital, retaining a minority interest and the Threshers £85
million ($170 million) First Quench pension scheme.
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At the time of the Threshers deal, PIC also acquired furniture and
electrical appliance retailer BrightHouse and hotel electronic
entertainment provider Quadriga, both of which formed part of the
former Thorn conglomerate. With the deal came the £1.2 billion
Thorn DB pension scheme. BrightHouse was subsequently sold by
PIC.
Now in its latest move, PIC has made a cash bid worth £398 million
for telent, the remnant of the former UK electronics equipment
manufacturer Marconi (formerly General Electric, once the
second-largest industrial company in the UK), which was sold to
Swedish electronics company Ericsson in 2005. telent’s big
attraction for PIC is the £2.5 billion, 62,000-member General
Electric (GE) DB pension scheme which did not form part of
Marconi’s sale to Ericsson. An acquisition of telent would also
bring with it £500 million in an escrow account that was
established to support the GE scheme.
Biggest transfer of pension liabilities
If PIC’s bid for telent is successful, it would represent the
biggest transfer of pension liabilities in the UK to the secondary
pensions buyout market and give PIC management of pension assets
totalling about £5 billion, said Andrew Reid, head of corporate
consulting at consultancy Watson Wyatt.
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By GlobalDataPIC, which set up a special purpose vehicle, Co-Investment No 5
Incorporated, to execute the acquisition, has already secured a
29.4 percent interest in telent via irrevocable undertakings from
certain shareholders and open market purchases on the London Stock
Exchange. telent’s board of directors have given PIC’s bid its full
backing.
Commenting on PIC’s move, its group chief executive, Edmund Truell,
said: “Once [telent is] private, we intend to free up Mark Plato
[telent’s CEO] and his management team to focus on the operating
business and give them our full support in rebuilding a strong and
high-quality service business.”
However, Reid believes the GEC pension liabilities and telent’s
assets will be separated from the operating business fairly shortly
after the deal is completed, as has been PIC’s practice so
far.
Truell, who led the establishment of PIC in 2006, has had 22 years’
experience in private equity. In 1994 he founded private equity
firm Duke Street Capital Group and as its CEO until 2005 oversaw
its growth into a firm with assets under management of over £1.5
billion.
PIC’s CEO John Fitzpatrick was formerly reinsurer Swiss Re’s chief
financial officer (1998 to 2003), head of life and health business
group (2003 to 2005) and head of financial services (2005 to
2006).
PIC’s major shareholders include banking groups ABN AMRO, HBOS and
Royal Bank of Scotland and insurers Sampo Life and Swiss
Re.
