Links and Slaughters advise on Diageo’s liquid pension strategy

Linklaters and ­Slaughter and May and have advised on an innovative deal that will see drinks company Diageo use maturing whisky to help plug its £862m pension deficit.

Stephen Powell
Stephen Powell

The company turned to longstanding adviser Slaughters on the deal, which will see more than £500m worth of the spirit placed into a pension ­funding vehicle.

The firm’s finance deputy head Stephen Powell acted on the deal alongside ­pensions partner Charles Cameron, tax partner Steve Edge and financial regulation partner Jan Putnis.

Linklaters partner Claire Petheram acted for the ­pension scheme trustees.

Under the terms of the deal, recently distilled whisky from Diageo’s 27 Scottish distilleries will be put into a pension funding partnership that will ­produce an annual income for the pension scheme of £25m over a 15-year ­period. At the end of the term the trustees will be able to sell the whisky back to Diageo.

The value of the whisky should be kept constant by Diageo being given the option to buy the three-year-old spirit from the pension fund when it reaches that anniversary and transferring a younger whisky in.

Until now Diageo has made a £50m annual ­payment to the pension fund, but the new arrangement will allow it to stop making this payment while maintaining the same level of funding to the scheme.

Diageo is the latest ­corporate to embrace an alternative way of funding its pension scheme deficit, with the use of contingent assets growing in popularity over the past couple of years.

In one of the first deals of its kind, Slaughters in 2008 advised Marks & Spencer (M&S) on a deal that saw the ­retailer put £400m worth of property into a pension funding partnership. The company then leased the properties from the partnership, with the rental income being used to fund the pension scheme.

Cameron and Edge also acted on that deal alongside corporate partner Andy Ryde. Linklaters partner Isabel France acted for the pension scheme trustees.

The M&S deal was updated earlier this year.