Unlock the Editor’s Digest without spending a dime
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
Boots has agreed to switch £4.8bn of pension obligations to insurer Authorized & Common in a deal that paves the best way for a possible sale of the UK’s largest pharmacy chain by proprietor Walgreens Boots Alliance.
The FTSE 100 insurer will tackle the belongings and liabilities of the scheme, which covers 53,000 present and future retirees, in one of many largest-ever such transactions within the UK.
By offloading the pension liabilities, Boots has eliminated one impediment to Walgreens promoting the enterprise. Final yr, the US firm deserted an try to promote the chain, pointing to an “sudden and dramatic change” in market situations.
The L&G transaction got here on the identical day that Rothesay, a UK life insurer, agreed to tackle £4bn of the pension liabilities of the Co-operative Group, whose operations span supermarkets to funeral providers.
When it deserted the Boots sale final yr, Walgreens stated that whereas there had been “vital curiosity”, bids for the 174-year-old firm had didn’t mirror its potential worth.
Some potential acquirers have been postpone by the problems of a giant outlined profit pension scheme, for which a brand new proprietor would have develop into accountable.
Rosalind Brewer, Walgreens’ former chief govt, on the time signalled that the corporate would think about different deal choices. It will “keep open to all alternatives to maximise shareholder worth,” she stated.
Brewer stepped down abruptly in September after two-and-a-half years within the put up. She was changed by healthcare business veteran Tim Wentworth.
Boots stated it will convey ahead roughly £170mn of already dedicated funds to the pension scheme and has agreed to pay additional contributions value about £500mn.
Alan Baker, chair of trustees for Boots’ pension scheme, stated the deal “offers added safety to our members’ long-term advantages by eradicating market uncertainty and different monetary exposures”.
Demand for UK pension offers is booming as corporations purpose to rid themselves of legacy schemes. Rising rates of interest have made it extra inexpensive for employers to dump their schemes and that is anticipated to be a document yr for deal making.
The benign situations imply that the size of the offers can also be rising. Insurer RSA agreed to dump £6.5bn of its liabilities earlier this yr, the most important total transaction within the UK thus far, whereas the Monetary Occasions reported in July that BP was in talks over an insurance coverage deal for its £30bn pension scheme.
L&G stated that it had written £13.4bn of pension switch enterprise globally thus far this yr. “We’re persevering with to see an unprecedented acceleration in demand on this sector, pushed by extra pension schemes being nearer to buyout than ever earlier than,” stated Andrew Kail, chief govt of L&G’s institutional retirement enterprise.
The Co-op’s director of pensions Gary Dewin stated its deal decreased the corporate’s publicity to future funding dangers and helped strengthen the Co-op “for the advantage of our members”.