UK - Massive potential pension scheme liabilities could sour the multi-billion pound merger between National Grid and Lattice, industry experts warn.
The two companies each have a market capitalisation of around £6.5bn. But while the National Grid's pension scheme is valued at around £1.5bn, the Lattice scheme is valued at more than £11bn.
And pension industry sources believe the full implications of FRS17 – the accounting standard that puts pension liabilities on the company balance sheet – could make National Grid think twice about the proposed merger.
Sources within the industry believe that such disparities in pension liabilities would have to be looked at “very closely indeed” in any due diligence process.
The schemes also have large mismatches in member profile. The Lattice scheme has around 15,000 active members and a massive 100,000 deferred and pensioner members. The National Grid scheme has around 3600 actives members and just 8000 deferred and pensioner members.
Lattice closed its defined benefit pension scheme to new members as from April 1 this year and has no plans to change should it merge with the National Grid scheme.
A Lattice spokesman confirmed: “We have no plans to change our scheme at this stage. However we do give the caveat that no company can give open-ended commitments.”
The Lattice pension scheme is a cause of concern to its sponsor company after a valuation at the end of last year revealed a substantial fall in asset values from over £13bn to around £11bn.
The National Grid pension fund – part of the Electricity Supply Pension Scheme – is advised by Bacon & Woodrow while the Lattice Group Pension Scheme is advised by Watson Wyatt.
Full details of the proposed merger between the two companies will be sent to shareholders in June.
By Jonathan Stapleton
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