While the net result of this ‘deficit for equity swap’ is that existing shareholders will retain just 9.8% of the company, Uniq boss Geoff Eaton (pictured) said it was the “only viable way of enabling shareholders to achieve some value for their shareholdings in the company”.
Moreover, its bank had told the board that if the deal did not proceed, it would not provide a new loan facility, said Uniq, which has four factories in Minsterley (desserts), Spalding (salads), Evercreech (desserts) and Northampton (sandwiches and wraps).
“While the company has adequate cash at the present time, this is unlikely to be sufficient to fund the group’s expected working capital requirements for the whole of the next twelve months."
Deficit for equity swap
Under the deal, which has been cleared by the pension regulator but is still subject to the approval of shareholders and the High Court, the pension trustee has agreed to release Uniq from its £400m+ pension debt (£473m as of July 31, 2010), in exchange for a 90.2% shareholding in the business and a £14m cash payment to the pension scheme.
A new £25m bank facility will also be made available conditional upon the scheme of arrangement becoming effective, said Eaton, who aims to complete the restructuring by the end of March and move Uniq's share listing to the Alternative Investment Market (AIM) in April.
"The solution will release the business from the huge legacy pension burden, while realising the best possible outcome for pension members and achieving some value for our shareholders."
Why does Uniq have such a large pension deficit?
In the 1980s, Uniq (formerly Unigate plc) sold its dairy business to Dairy Crest but retained responsibility for a pension scheme with thousands of members.
“The result was that, despite a significant downsizing of its business, the group continued to be responsible for a defined benefit pension plan with over 40,000 members," said Uniq.
"At the time, this seemed reasonable given the then-prevailing regulatory environment for defined benefit pension plans, and the fact that the pension scheme appeared well-funded on the basis of valuation assumptions reasonably prevalent at the time.
“Both the regulatory environment and approaches to pension plan funding have changed significantly in recent years and, if material divestments were to take place today, it is perhaps unlikely that a similar approach would be adopted.”
What happens next?
If all goes to plan there will be shareholder and court meetings on February 25 and Uniq shares will be suspended from trading on March 17; the capital reorganisation will be effective from March 18, with Uniq listed on the AIM from April 1.
* Separately, Uniq has also revealed that it will pay logistics firm Wincanton £2.25m (plus VAT) to settle a long-running dispute over a logistics agreement entered into in 2001, for facilities in Gloucester that Uniq stopped using in 2007.