Danger signal for Green

PHILIP Green is staring into the abyss. Pensions - the issue he flagged up so early in his predatory assault on Marks & Spencer and raised again as he increased his 'virtual' bid for the beleaguered retailer to 400p a share - could indeed be the 'dealbreaker' he has feared all along.

As chief executive Stuart Rose stands up to deliver his vision for the future of the group tomorrow, he will be clutching a piece of paper in his hand. He hopes it will effectively mean curtains for Green's ambitions, even though about a quarter of the group's investors appear to be showing an appetite at least to be given the chance to say yea or nay to a firm bid from the billionaire.

The pension trustees have declared that if M&S were to be taken over in a deal that meant loading the business with debt, as Green proposes, they would have to take a much more conservative view of the outlook for the fund.

At present, about 40% of the pension fund's assets are in bonds with the rest in a mix of equities, property and other investments.

But if the group's future looked less secure because the company had been loaded with debt, the trustees would swiftly want to increase the proportion of the fund in bonds, regarded as safer investments and more closely linked to future liabilities.

That move - though a fund the size of M&S's with a total of £3.6bn of assets could not make the switch overnight - would mean a pretty rapid expansion of the 'black hole' sitting at the fund's heart despite the recent injection of £400m by the company.

In fact, the trustees argue, the deficit would balloon to £1bn from the current £185m after allowing for the benefit of tax credits.

For Green, such a yawning chasm would put the kybosh on the entire economics of his bid. Yes, he has increased what he is prepared to offer, thinking the deficit might account for about 30p a share of the price. But three to four times what he anticipates would be too rich, certainly without being able to discuss a funding timetable.

The trustees of the M&S pension fund refused to meet Green or to give him anything other than the blandest of hints about any possible shift in their investment criteria should his bid succeed.

Green has questioned their impartiality. That is almost certainly unfair, however unhelpful their posture has appeared to him. However, their decision to communicate the latest information only to the board of M&S - from which they are supposed also to stand at arm's length -rather than to write simultaneously to Green will do little to strengthen their credentials as unbiased participants in this takeover battle.

The pension fund at WH Smith effectively scuppered a takeover bid by venture capitalist Permira, which was also planning to load the company with debt. Likewise at M&S, the pension fund looks increasingly like a poison pill. This is despite the fact that its trustees have less draconian powers to demand instant payments than those at its retail cousin.

What these two bids make clear, though, is the potentially repellent impact a large pension shortfall can have on a bidder. Who knows, all those companies that were only recently looking for any way to extract themselves from the impact of large pension deficits might now be thanking their lucky stars.

No safety in the net

IF this Government wanted evidence of the inadequacy of the £400m assistance fund it has set up to rescue the victims of pension wind-ups, it need only look at the problems now being encountered by the tens of thousands of members of the Turner & Newall scheme.

Turner & Newall is an engineering firm that hit trouble over asbestosis claims and was acquired by the American group Federal-Mogul. That company has now itself gone into Chapter 11 bankruptcy proceedings to protect itself from creditors.

Talks are now taking place between the trustees of the T&N scheme concerning future funding. Though the fund meets regulatory requirements under the Minimum Funding Guarantee, this frequently falls balefully short of actual requirements.

Were, heaven forbid, the T&N scheme to go into wind-up, its 21,200 pensioners should be safeguarded.

But the 19,593 employees and deferred members - those who have left the company but hope to claim a pension in future - would have to rely on a £400m fund that is unlikely to be up and running before next year.

If, though, negotiations drag on a little longer before disaster strikes, the T&N scheme could well become the first - and very substantial - claimant on the proposed pension protection fund.

That would certainly send shivers down the backs of all Britain's pension schemes, which are being called on to underwrite their weaker brethren.