Johnston’s pension dump highlights pre-pack perils

This time last year the Norwegian businessman, Christen Ager-Hanssen and then the biggest shareholder in Johnston Press, warned “This company is in deep s***. It needs to be taken over. That needs drive and energy. That board doesn’t have it. I have it.”

Ager-Hanssen appears right about one thing: the Johnston board doesn’t look to have had either the drive or the energy. As of last Friday night, Johnston Press ceased to exist when the management applied to the courts to put it into a pre-pack administration process.

The deal wiped out Ager-Hanssen’s majority 25% shareholding, along with stakes owned by three other big investors who held between them another 27%, as well as hundreds of small investors even though the firm was worth £2.9m when shares were suspended.

Yet Ager-Hanssen claims the 250-year-old publisher of the i newspaper, the Scotsman, the Yorkshire Post and another 200 regional titles with around 40 million readers, was not bust: the old Johnston had a positive, albeit tiny, cash flow, with the i newspaper due to make profits of £12 million this year.

What Johnston did have hanging around its neck was a huge £220 million pile of debt, the legacy of executives overpaying for trophy newspaper acquisitions but failing to monetise the websites of its titles.

Now comes the stranger part to this extraordinary tale. Magically, overnight, a new beast arose Phoenix-like from the ashes to take control of Johnston Press, in the guise of JPI Media. But with the same bosses on board.

Guess who the new owners are? Yes, a consortium of creditors led by GoldenTree, the aggressive US hedge fund, with whom Johnston boss David King had negotiated to refinance the debt.

Magically, GoldenTree and the other lenders agreed to cut senior debt to £85 million and inject £35 million of new cash. Yet Johnston’s defined benefit pension scheme, estimated to have £109 million of liabilities, did not transfer to new owners JPI. Funny that.

Instead, the bondholders have ditched liabilities into the Pension Protection Fund, the Government’s lifeboat scheme — or should one now say luxury cruiser for pre-packs? — to provide pension benefits to members of schemes whose employers become insolvent.

The PPF must assess now whether to take responsibility for JP’s scheme.

Thanks to the tireless persistence of Frank Field MP, chairman of the backbench work and pensions select committee, the Pensions Regulator will also be demanding that the new owners explain how they acquired the business without taking responsibility for its pension scheme.

Ager-Hanssen is not a happy bunny, and neither are other investors like Richard Bernstein’s Crystal Amber Fund and Sir Raymond Tindle. Ager-Hanssen, who owns Sweden’s Metro, claims Johnston ignored other solutions, such as a rights issue, and that investors were never asked to take part in a rescue operation. “This wasn’t a pre-pack but pre-planned corporate theft with all the parties colluding,” is how he put it to me. He will not stop fighting, and claims hundreds of small shareholders are ready to fight with him.

He wants Johnston’s decision overturned and is planning legal action after he has seen the report being prepared by Alix Partners, the insolvency experts which handled the administration. The onus is on Alix to explain why a pre-pack was chosen over other options.