The Pension Protection Fund aims to protect pensions – not management

It looks terrible for Pension Protection Fund (PPF): the pensions lifeboat fund is planning to vote against a restructuring of the UK arm of Toys R Us, an action that could mean 3,200 people lose their jobs. On the company’s proposal, only 800 employees would depart and the others would resume the fight against Amazon’s invasion of the toy market.

The PPF, however, is not to blame for this mess. Its hands are tied. The PPF’s job to look out for the interests of pensioners in Toys R Us’ defined-benefit scheme and bargain accordingly. It has put forward a plan that looks more than reasonable: Toys R Us, as the price of support for its self-help plan, should put £9m into a pension fund that is showing a £30m deficit.

The company pleads it hasn’t got the money, a cry that raises many questions, most of them identified by Frank Field, chairman of the work and pensions select committee. What on Earth was going on when the UK division of Toys R Us wrote off a £584m loan to the US parent, which has entered bankruptcy proceedings? And why was the UK managing director of Toys R Us being paid £1.3m last year?

For now, the PPF must contain itself to the immediate question of Toys R Us’ survival prospects in the UK. If the company – actually – can find £9m, it should cough up. If the cupboard really is bare, then the self-help plan may be doomed anyway and carrying on could make matters worse for the PPF. So-called company voluntary arrangements, of the sort Toys R Us is seeking, do not have a great record of success.

The best short-term solution is for Toys R Us’ management to turn somersaults to find the £9m. If it’s too late to ask the US bankruptcy courts to waive annual royalty payments of £8m-ish for a year, then look for a bridging loan or find other means. Managements cannot just assume that the PPF, when pushed, will agree to anything.

Whatever happens at Thursday’s CVA hearing, that huge loan write-off needs to be examined by the Pensions Regulator. There may be an innocent explanation but, on the face of it, it is extraordinary that the trustees of the pension fund and the regulator were kept in the dark. One lesson from the BHS pensions debacle was that the regulator needs more powers to intervene in substantial transactions. The government, which hasn’t got further than a white paper, needs to hurry up.

Tales from the City

Which version of events do you prefer? Did Donald Brydon, chairman of the London Stock Exchange, score a thumping four-to-one majority as shareholders rallied to his support to put a decisive end to the fallout from chief executive Xavier Rolet’s departure? Or did he achieve a hollow victory that leaves his authority damaged?

A fair analysis probably lies somewhere between those extremes. In the weird world of City voting, where mega majorities are the norm, 79% support counts as an in-between result. Anything less than 80% these days gets a company on a “blacklist” where it is obliged to explain what it plans to do to improve relations with shareholders. The LSE will now suffer than indignity.

Angry hedge fund manager Sir Christopher Hohn, who bizarrely didn’t bother to turn up to a meeting he had called, was crowing about the blacklist point afterwards. Fair enough.

Yet let’s not lose sight of the wider picture. Hohn’s TCI fund set out to keep Rolet at the LSE until 2021 but only hastened his departure. The chief executive went last month, instead of staying until a successor could be recruited next year. Hohn can’t put a positive gloss on that outcome. He failed to achieve his main goal.

Brydon’s mistake – actually, the mistake of all the non-executive directors – was smaller. The LSE’s board should have said more in the first place about its reasons for wishing to replace Rolet after nine successful years. The chairman is correct to say boards can’t be expected to put “all relevant information” in the public domain. Equally, however, there is a skill in saying just enough to prevent Hohn-style explosions.

Brydon is now safe to lead the hiring of a new chief executive and carries the confidence of the regulators, which is what matters after Tuesday’s vote. Will he, though, make it all the way to April 2019, the previously-agreed compromise date for his own departure? If he’s determined to do so, he probably can. Do not be surprised, however, if late 2018 is deemed a better fudge.

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