UK - The £2.3bn Boots Company Pension Scheme's move from equities to bonds has enabled its parent to embark on a massive share buyback programme.
The high street chemist says the £300m buyback is a direct result of the pension scheme’s move to bonds, which has strengthened the company's balance sheet.
A City source close to the company said : “Having taken risk out of the pension fund by moving from equities to bonds, it has taken risk out off-balance sheet, so they can add risk on balance sheet and maintain a smaller pension fund cushion.”
The source added: ”Previously, Boots had a business investing in equities. They no longer have that business and can return to shareholders the capital that was used to support that business.”
The £300m given back to shareholders represents around 20% of the value of the equities that the Boots pension scheme sold over the 18 months to July 2001.
Industry figures say that Boots was lucky in selling its equities at a time when stock markets were buoyant and that other schemes hoping to follow the move to bonds are having to do this more gradually.
Standard & Poor’s associate director Gordon Wright said: “Boots felt comfortable that they were doing the right thing at the right time and shareholders are being rewarded as a result.
“Not everybody made that move at that time and some people are still making the move in a rather more gradual fashion.”
Barnett Waddingham partner Colin Richardson said: “By moving from equities to bonds, it is likely that Boots have reduced their risks.
“The fact that they have reduced their risk gives them more freedom in other ways.”
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