DWS and Herbies wrestle with J Sainsbury pensions

Denton Wilde Sapte (DWS) and Herbert Smith are thrashing out key pensions issues that are vital if Delta Two’s acquisition of J Sainsbury is to go ahead.

A DWS team led by head of employment, pensions and benefits Alan Jarvis is advising Sainsbury’s pension fund trustees while a Herbert Smith team led by pension group head Ian Gault is acting for Delta Two.

Members of the Sainsbury family, which owns a minority stake in the company, have reportedly refused to back Delta Two’s £10.6bn takeover bid unless an agreement over funding the pension is reached with trustees.

The fund has 85,000 members and £4.25bn in funds under management. It is thought that trustees are asking Delta Two to provide between £1bn and £2bn in funding for the scheme.

The situation is reminiscent of that seen earlier in the year when Boots Pension Scheme trustees threatened to halt Kohlberg Kravis Roberts’ acquisition of Alliance Boots because its bidding vehicle had not clarified the contributions it would make towards the fund’s deficits (www.thelawyer.com, 21 June). Ashurst and Sacker & Partners acted for the pension scheme while Alliance Boots was advised by Slaughter and May and the bidding vehicle was advised by Simpson Thacher & Bartlett.

The issue on the Sainsbury deal is similar: trustees are concerned that the debt being used to finance the acquisition will be pushed onto the company’s balance sheet, meaning pensioners will rank behind creditors in the event of the company becoming insolvent. As such they want guarantees that the pension fund’s future liabilities will be secure.

Delta Two and Sainsbury are expected to reach an agreement in the coming weeks. On the acquisition Qatari-based Delta Two is being advised by the London office of Skadden Arps Slate Meagher & Flom while Linklaters is advising Sainsbury.

Shearman & Sterling is acting for Credit Suisse and Dresdner Kleinwort, the financial advisers to the bidders.