Alliance Boots' IAS19 pension deficit could rise to over 350 mln stg - Ralfe |
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Published
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Wed, 25 Apr 2007 12:27
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LONDON (Thomson IM) - The pension deficit at Alliance Boots PLC could soar to over 350 mln stg from 83 mln stg as at Sept 2006, if the company applied realistic longevity assumptions, according to John Ralfe, former head of corporate finance at Boots.Yesterday, Kohlberg Kravis Roberts (KKR) and Stefano Pessina, Alliance's executive deputy chairman, lifted their offer for the international health and beauty group to 11 bln stg, and upped their holding in the group to 29.3 pct, prompting a rival consortium to withdraw its interest.In a research note for RBC, Ralfe said, based on realistic longevity assumptions, KKR should inject at least 500 mln stg in the pension scheme.The latest IAS19 deficit at 83 mln stg was based on weak mortality assumptions, which have not been updated since 2004. As a result, the company's assumptions are weaker than J Sainsbury PLC, Tesco PLC, WM Morrison and Marks & Spencer Group PLC, Ralfe said.He noted the company had also made no allowance for future expected improvements.'Even with a 'blue-collar' work force, a 'medium' cohort or future expected improvement would add two-years to Boots' current longevity assumptions (83 for a man and 85 for a woman).'This, in turn, adds around 280 mln stg to liabilities, increasing the Alliance Boots September 2006 IAS19 deficit from only 83 mln stg to over 350 mln stg,' he said.And while the trustees legal powers are limited, Ralfe said they are in a powerful negotiating position.'KKR must win the goodwill of employees and pension scheme members, so the trustees can extract a much higher contribution than the legal minimum as the price of supporting the deal. Based on realistic longevity assumptions KKR should inject at least 500 mln stg,' he said.Ralfe was instrumental in moving the 2.4 bln stg Boots pension fund to 100 pct AAA long dated sterling bonds and swaps, half inflation-linked, followed by a 300 mln stg Boots' share buyback.By Raji Menon: +44 (0) 20 7422 4954; raji.menon@thomson.comraj/ims/ims/sljCOPYRIGHTCopyright AFX News Limited 2007. All rights reserved.The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.
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Sainsbury trustees' comments on pension deficit 'noisy sabre-rattling' - Ralfe 