Excerpt from FactSet Flashwire News

LONDON – Pension funds are known for breaking up deals, as can be seen in the failed J Sainsbury takeover. But there’s a new way to get this albatross from around the neck of potential targets: selling off pension schemes to someone willing to shoulder that burden, and even throwing in some cash.

With pensions relatively common in the U.K., more buyers are flowing into the market.

One London-based M&A lawyer for Skadden said that aside from financing problems, negotiating pensions is the biggest hurdle in working through the details of U.K. takeovers.

Pensions prove a difficult hurdle in takeovers because they are more creditors than shareholders. If the company does well, pensioners don’t see any more cash. If the company sinks – perhaps due to inappropriately handled leverage – the pensioners’ financial stability is at risk. Steady dependability is always more appealing to trustees than even a mildly risky chance to soar. That means financial buyers are especially unattractive.

Richard Grainger, CEO of Close Brothers’ corporate finance division, said pension funds are one of the main issues he advises on. So for U.K. companies keen to sell, their pensions are a big issue to surmount.

But the option to spin off pensions has suddenly become popular. An October survey found that about a quarter of the biggest U.K. companies would consider selling their pension schemes, with about a tenth of the companies looking to sell within five years.

For years Prudential Plc and Legal & General Plc have done a modest number of pension buyouts each year, but recently Goldman Sachs Group, UBS AG, Citigroup Inc., Paternoster Ltd., and Pension Corp., Synesis Life Ltd., Tactica Insurance and PensionsFirst have all gotten into the scene.

Mark Wood, CEO of Paternoster, one of the new popular kids on the pension consolidator block, said in a press release that pension buyouts could increase 500% this year over 2006 and that Paternoster bought £406 million in assets in the third quarter of 2007, a 20% jump from the quarter before.

Take consumer magazine publisher Emap Plc., for instance. Known for Grazia, FHM and Arena, the company has been sinking for about a year. Last week Emap announced it sold its £170 million pension fund to Paternoster after chucking in £40 million for the relief of being done with it. That’s one giant hurdle less in the road to selling itself, which it aims to do by the end of the year.

Emap is the first public company to do something so brash, tossing the future of 1,700 former employees into the hands of someone else. As it stands now, though, it appears to be a bit of an ethical issue, a sign of lax morals, but that’s not based on reason.

In actuality, rather than throwing ex-employees’ futures to the wolves, these pension buyers are regulated by The Financial Services Authority and are financially more secure than the average company. For example, if Emap went bankrupt, it would rely on the government’s Pension Protection Fund to pay pensioners. Paternoster or any of its brethren must have a certain amount set aside to guarantee payouts despite the company’s financial health. That’s a second layer of protection.

Still, a somewhat family-owned company like J Sainsbury is unlikely to opt for a pension spin-off, despite the fact that Qatari-owned Delta Two walked away from the £ 10.6 billion buyout, citing the extra £500 million the pension fund wanted on top of the agreed-upon £2 billion.

There’s a landmark case up in the air right now regarding pensions’ rights to protect themselves. The decision will surely be a harbinger of what’s to come. Pension Corp. is trying to buy the U.K. telecom group telco telent, which houses the £500 million pension fund of Marconi Electronic Systems.

However, in the hopes of being shielded from Pension’s control, telco had regulators appoint independent trustees, rather than trustees from within the company, knowing that if Pension wins the company it will appoint whomever it likes, with whatever strategy it likes. Basically, telent, knowing it may change hands, protected its pensioners by giving the likely new owners no control over decisions.

One knock against Pension is that in this deal it didn’t ask regulators for clearance. Pension Corp is testing the waters with the way it tried to handle the telent takeover, and it’ll be interesting to see if regulators side with telent or Pension.

Likely Upcoming Pension Sales

Some UK companies who have already said they’re looking to offload their pension funds include leisure group Rank, communications company Cable & Wireless and defense firm BAE Systems. U.K. appliance maker Aga Foodservice Group’s pension fund is wellsupplied, making it a likely target, as well. It just sold off its commercial business to Italy’s Ali SpA for £260 million. What’s left is a consumer business connected to a pension fund with about £800 million in assets and a £ 70 million surplus. Already Pension Corp. has bought 17% of the business and it’s expected Pension will zip in for the rest once the telent deal is decided.

Completed Pension Buyouts

Pension gained notoriety this summer when it bought U.K. alcohol retailer Threshers, kept its pension scheme, and two weeks later sold the retail business.

Thomson Regional Newspaper’s £200 pension fund sold to Citigroup in August.

And to wrap up the buyout of £11.1billion buyout of pharmacy retailer Alliance Boots this summer, KKR had to shell out £1 billion to its pension scheme.

LONDON – Pension funds are known for breaking up deals, as can be seen in the failed J Sainsbury takeover. But there’s a new way to get this albatross from around the neck of potential targets: selling off pension schemes to someone willing to shoulder that burden, and even throwing in some cash.

With pensions relatively common in the U.K., more buyers are flowing into the market.

One London-based M&A lawyer for Skadden said that aside from financing problems, negotiating pensions is the biggest hurdle in working through the details of U.K. takeovers.

Pensions prove a difficult hurdle in takeovers because they are more creditors than shareholders. If the company does well, pensioners don’t see any more cash. If the company sinks – perhaps due to inappropriately handled leverage – the pensioners’ financial stability is at risk. Steady dependability is always more appealing to trustees than even a mildly risky chance to soar. That means financial buyers are especially unattractive.

Richard Grainger, CEO of Close Brothers’ corporate finance division, said pension funds are one of the main issues he advises on. So for U.K. companies keen to sell, their pensions are a big issue to surmount.

But the option to spin off pensions has suddenly become popular. An October survey found that about a quarter of the biggest U.K. companies would consider selling their pension schemes, with about a tenth of the companies looking to sell within five years.

For years Prudential Plc and Legal & General Plc have done a modest number of pension buyouts each year, but recently Goldman Sachs Group, UBS AG, Citigroup Inc., Paternoster Ltd., and Pension Corp., Synesis Life Ltd., Tactica Insurance and PensionsFirst have all gotten into the scene.

Mark Wood, CEO of Paternoster, one of the new popular kids on the pension consolidator block, said in a press release that pension buyouts could increase 500% this year over 2006 and that Paternoster bought £406 million in assets in the third quarter of 2007, a 20% jump from the quarter before.

Take consumer magazine publisher Emap Plc., for instance. Known for Grazia, FHM and Arena, the company has been sinking for about a year. Last week Emap announced it sold its £170 million pension fund to Paternoster after chucking in £40 million for the relief of being done with it. That’s one giant hurdle less in the road to selling itself, which it aims to do by the end of the year.

Emap is the first public company to do something so brash, tossing the future of 1,700 former employees into the hands of someone else. As it stands now, though, it appears to be a bit of an ethical issue, a sign of lax morals, but that’s not based on reason.

In actuality, rather than throwing ex-employees’ futures to the wolves, these pension buyers are regulated by The Financial Services Authority and are financially more secure than the average company. For example, if Emap went bankrupt, it would rely on the government’s Pension Protection Fund to pay pensioners. Paternoster or any of its brethren must have a certain amount set aside to guarantee payouts despite the company’s financial health. That’s a second layer of protection.

Still, a somewhat family-owned company like J Sainsbury is unlikely to opt for a pension spin-off, despite the fact that Qatari-owned Delta Two walked away from the £ 10.6 billion buyout, citing the extra £500 million the pension fund wanted on top of the agreed-upon £2 billion.

There’s a landmark case up in the air right now regarding pensions’ rights to protect themselves. The decision will surely be a harbinger of what’s to come. Pension Corp. is trying to buy the U.K. telecom group telco telent, which houses the £500 million pension fund of Marconi Electronic Systems.

However, in the hopes of being shielded from Pension’s control, telco had regulators appoint independent trustees, rather than trustees from within the company, knowing that if Pension wins the company it will appoint whomever it likes, with whatever strategy it likes. Basically, telent, knowing it may change hands, protected its pensioners by giving the likely new owners no control over decisions.

One knock against Pension is that in this deal it didn’t ask regulators for clearance. Pension Corp is testing the waters with the way it tried to handle the telent takeover, and it’ll be interesting to see if regulators side with telent or Pension.

Likely Upcoming Pension Sales

Some UK companies who have already said they’re looking to offload their pension funds include leisure group Rank, communications company Cable & Wireless and defense firm BAE Systems. U.K. appliance maker Aga Foodservice Group’s pension fund is wellsupplied, making it a likely target, as well. It just sold off its commercial business to Italy’s Ali SpA for £260 million. What’s left is a consumer business connected to a pension fund with about £800 million in assets and a £ 70 million surplus. Already Pension Corp. has bought 17% of the business and it’s expected Pension will zip in for the rest once the telent deal is decided.

Completed Pension Buyouts

Pension gained notoriety this summer when it bought U.K. alcohol retailer Threshers, kept its pension scheme, and two weeks later sold the retail business.

Thomson Regional Newspaper’s £200 pension fund sold to Citigroup in August.

And to wrap up the buyout of £11.1billion buyout of pharmacy retailer Alliance Boots this summer, KKR had to shell out £1 billion to its pension scheme.

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