M&S pension hole threatens bid

BILLIONAIRE Philip Green's attempt to buy Marks & Spencer could collapse this week unless he can persuade trustees of the retailer's pension fund to waive their rights to force any bidder to fill immediately the £670 million hole in its retirement scheme.

Green is seeking a meeting with trustees tomorrow. According to friends he is keen to table an offer this week at more than the 370p a share - or £8.4 billion - he has already indicated.

But a demand to repair the pension deficit immediately would equate to another 30p a share. Green's camp has indicated that it would be unwilling to make an improved offer under these circumstances.

Green told Financial Mail: 'This is a crucial moment. We need to know the possible exposure on the pension fund and when that's got to be made good. It is simply unacceptable that Paul Myners [the M&S chairman] won't give us the information.'

A source close to Green said: 'This is a deal breaker. Philip wouldn't want to table an improved offer only to discover he had to find £670 million to put the pension fund right. He couldn't afford to embarrass himself like that.'

It is understood that major shareholders --thought to include M&S's largest investor, USbased fund manager Brandes, with a near-12% stake - have asked M&S to disclose the rules under which pension fund trustees operate. M&S

said it was the responsibility of trustees - only two out of eight of whom are not current or former members of the company's management - to respond to Green.

However, one person with knowledge of the scheme's details said: 'The scheme's actuaries must be satisfied the company can make good if there is any deficit. If there was a change of control, the trustees would have to consider very carefully whether the actuaries had been given strong and stringent enough criteria.'

A takeover bid from Green would involve a massive increase in M&S's debt and this would heighten the risk for the pension scheme and its tens of thousands of members.

Though there is a £670 million deficit under new accounting rules that take a 'snapshot' of the scheme's funding arrangements, the longerterm shortfall is put at about £185 million, which may give Green room to negotiate with trustees.

Last month, a £940 million takeover bid from venture capitalist Permira for WH Smith was effectively scuppered because the pension fund trustees had the power to require a bidder to make good a large deficit in the pension fund.

M&S shareholders will have a chance to pass judgment on the new management team at the retailer's annual meeting next week.

Investors will be asked to rubberstamp last month's appointment of chief executive Stuart Rose, executive director Charles Wilson and Myners.

The election will come just two days after Rose unveils his strategy for M&S, designed to thwart a possible takeover by Green. Rose's credibility has been questioned after he bought 100,000 shares in M&S, about an hour after receiving a phone call from Green. It came three weeks before his appointment at the store group.

However, a phone poll of Financial Mail readers shows strong support for him. Asked who would be better at running M&S, 78% said Rose and only 22% went for Green.