Pension liabilities can compromise take-over plans

Almost half of FTSE350 chief financial officers say that the pension liabilities of companies they may buy or merge with represent major obstacles.

According to a survey from Towers Perrin’s HR Services business, based on responses from 70 chief financial officers, companies’ merger and acquisition ambitions are being severely affected by pension liabilities.

And HR departments that are not prepared for take-overs are making it even more complicated.

Marco Boschetti, principal at Towers Perrin, said that despite HR departments traditionally being responsible for companies’ pension programmes, many HR departments remain unprepared for the new challenges ahead.

“Focusing solely on traditional pensions accounting due diligence can materially weaken merger and acquisition success,” he said. “Companies’ HR teams must also be fully included in the process to consider the potential people issues associated with deals.”

A related Towers Perrin survey conducted in the US which examined the impact of the HR function on the success of mergers and acquisitions, only 26 per cent of companies said they believed their HR function had been “fully ready” for such activity.

Financial analysis found that those with HR groups that were fully ready were twice as likely to improve shareholder value following a deal.

In fact, following a merger or acquisition, more than twice as many fully prepared companies outperformed their industry sector as measured by three-year total shareholder return (37 per cent versus 16 per cent).

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