Poison pension pill

Duke Street’s frustration at the failure of a potential deal with Uniq may turn out to be anything but unique. The firm has spent who knows how long researching the company in terms of potential value creation, only to lose a deal because it could not agree terms with pension fund trustees.

The failure of the negotiations may let in another private equity bidder – Uniq implied as much on February 11 – but Duke Street may have had a lucky escape on a longer term analysis.

The UK Pensions Act comes into force with retrospective powers on May 1, but there is confusion surrounding how it will treat pension liabilities attached to UK companies. This is not helped by the fact that the Government has still not appointed a pensions regulator who will have ultimate authority over how much debt can be placed ahead of company pension funds.

The glaring implication is that buyout bids could fail even if private equity firms can reach agreement with pension fund trustees. The whole issue, clouded and untested though it still is, adds a new layer of regulatory risk on top of the usual due diligence considerations.

Added to this is the potentially catastrophic scenario of a buyout firm landed with a pension liability claim. Although successful lobbying has removed individual liability for company directors, companies are still liable for deficits anywhere in the corporate group. The Act clearly goes too far, but buyout firms would be well advised to make sure their legal advisers really earn their fees from now on.

Take your partners

Fundraising is getting bigger and so are the deals. News that Blackstone has put in a €12.7bn verbal bid for Wind, the Italian telecom company, sets the scene for the largest-ever buyout since RJR Nabisco. And this time the target is European.

Things are still in the very early stages and Enel has plenty of other options and cannot be considered a forced seller. That said, a deal of that size would be financed in a very different climate from the late 1980s. Back in those days it was possible to do major deals with only 10% equity and 90% debt.

No equity house worth the name considers that anything like that is possible or indeed desirable in the current climate. European deals have tended to feature 30% equity and 70% debt, although the extreme liquidity of the last 12 months has pushed the acceptable boundary closer to 25%.

Whatever the eventual structure, Blackstone had better be prepared to get its cheque book out. The deal includes nearly €5bn in debt, capping potential for loading up the leverage. Another option would be for Blackstone to partner up, as might also be the case if and when the Auna deal ever amounts to anything. But where does all that leave the mantra of proprietary deal flow?