The issue of pension fund deficits undermining corporate investment and M&A activity in the UK was underlined in May when the UK government offered to “invest” between £1.1bn and £1.3bn in the Post Office, managed by Royal Mail. The Royal Mail’s chief executive, Adam Crozier, said of the deal: “[It’s] fantastic for taxpayers, who will get a good return; fantastic for the company; for our people, and for our customers, who will get an improved service. There are no losers in this. It’s a great deal from every point of view.”
The UK postal market was opened to full competition at the beginning of this year and so the Post Office’s competitors are understandably sour about what they see as a government bail out of a business that last year lost £111m and has a £5bn hole in its pension fund. Without an apparent trace of irony Allan Leighton, chairman of Royal Mail, said of the deal with the UK government: “It’s not a bail-out, There’s a return for the investor. Our investment case is that for every £1, it will get £5 back.”
If allowed to invest, private equity firms might be more than tempted by such a promised return, but heavy unionisation of the Royal Mail’s Post Office staff aside, would view walking into a £5bn pension fund deficit as financial suicide. A recent survey by Grant Thornton Corporate Finance of activity in the UK mid market during Q1 this year found 15% concerned that pension fund deficits would present a significant barrier to investment during 2006.
It can only be hoped that the several billion pound “investment” in the Post Office, fares better than the several million pound “investment” in Rover shortly prior to the last General Election in the UK (2004.) This shored up the payroll until election votes were counted and then redundancies began in earnest. This was in a business that many in the financial sector, who actually understand what it means to maintain a healthy balance sheet, regard as being snatched from the brim of possible success when Alchemy Partners was cut out of the running due to political concerns about asset stripping, for which read manufacturing job losses, in 2000.