JOHN Menzies is looking into options for further de-risking its defined benefit pension scheme after unveiling plans to offload a chunk of its liabilities as part of the proposed sale of its distribution business.
Under the terms of the sell-off, overnight logistics business Menzies Distribution - one of the largest newspaper distribution companies in the UK – will be bought by private equity business Endless, leaving John Menzies to focus solely on aviation services.
Read more: Swiss fund in move to break up 182-year-old Menzies
In preparation for the deal the Menzies Pension Scheme was last year divided into two sections, with the smaller portion attributable to Menzies Distribution. That section, which equates to around 17 per cent of the scheme’s assets and liabilities and is known internally as Section B, pays the pensions of around 500 retired Menzies Distribution employees.
John Menzies has now agreed a £15 million insurance deal with Pensions Insurance Corporation (PIC), which will pay those pensions for the next five years, at which point there will be the option to do a pensions buy-out deal with PIC.
That would see all Section B assets and liabilities transfer to the insurer and that part of the scheme would no longer have any links to Menzies Distribution.
John Menzies chief financial officer Giles Wilson said the business would now look at whether something similar could be done in relation to the remaining section of the scheme, which closed to future accruals last year but has over 3,500 deferred members and 1,639 pensioner members.
“We constantly try to de-risk the scheme where we can, working with the trustees” he said.
“We probably could do [something like the PIC deal] – anything is possible.
“We are committed to narrowing the deficit as sensibly as possible.”
Read more: John Menzies pulls plug on DX Group merger
At the end of 2017 Section A and Section B had a combined deficit of £49.5m and John Menzies has been paying around £12m a year into the scheme to help reduce that figure.
Section A, which will receive a £10m cash injection from the proceeds of the Menzies Distribution sale, is currently undergoing its triennial valuation, with Mr Wilson saying the business and the scheme’s trustees would discuss whether an insurance-type deal would be appropriate when that process is complete.
“It will take most of the year to get the valuation all agreed then we will go in and agree the funding programme,” he said.
If the sale of the distribution business is approved by John Menzies shareholders, Endless will pay off the firm’s £30m of debts and pay it £49.5m in cash. John Menzies will also retain a 10% stake in Menzies Distribution.
The sale of John Menzies’ distribution arm was first mooted in 2015, when Swiss activist investor Lakestreet Capital Partners raised concerns about what it termed “two non-synergistic businesses in one group”.
Last year it looked like John Menzies had found a solution to the problem when it agreed to reverse the distribution arm into AIM-listed logistics business DX Group, which also had an activist on its register in the shape of Gatemore Capital Management.
That deal was ultimately abandoned after Gatemore pushed for a higher valuation for DX and the businesses failed to agree terms.
Lakestreet chief executive Christian Kappelhoff-Wulff said the sale of Menzies Distribution to Endless was “to the benefit of all stakeholders of John Menzies plc”.
Read more: Menzies confident despite slow sale of division
“Shareholders in Menzies Aviation will now fully benefit from the significant growth opportunities available in a quickly consolidating industry and the new value creation plan ensures that the interests of the shareholders and the executive team are now more aligned than ever before,” he added.
Lakestreet owns just under 6.5% of John Menzies’ shares and is not thought to be looking to sell out. Shares in John Menzies were up nearly 8% yesterday at £6.45.
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