Marconi trustees concerned over Telent takeover

Moves by a wholly-owned subsidiary of bulk purchase annuity provider, Pensions Corporation, to acquire telecommunications group, Telent, has met with scepticism from the company's trustee board, with a source close to the board expressing fears over a potential weakening of the scheme's covenant if the deal goes through.

Pensions Corporation's Guernsey registered subsidiary, Co-Invest No 5, has acquired a 29.38% stake in Telent - a hair's breadth from the 30% mandatory offer threshold - a stake which includes the interest of activist investor, Polygon, which last year blocked a takeover deal from Fortress.

Pension Corporation intends to keep the £350 million company running, at the same time as using its financial skills to extract value from the £2.5 billion pension scheme which is the latest incarnation of fallen British electronics giant Marconi. In addition to the assets it holds, the scheme is also backed by a £400 million escrow account - a form of capital recently deployed by Pension Corporation in its buyout of the Thresher pension scheme.

The Marconi trustees are believed to be concerned about the future of the sponsor covenant under the Pension Corporation. The £20 million in free cash flow generated by the telecommunication services business of Telent is modest compared to the Marconi scheme's £120 million outgoing payments. But the trustees appear to draw considerable comfort from it, and are sceptical that Pensions Corporation would retain such a non-core business. According to the source, "The trustees can't form a view that the Pensions Corporation is a natural owner of Telent."

According to the source the trustees have attempted to express their concerns in person by securing a meeting with Pensions Corporation, "But our requests so far have been rebuffed." Pension Corporation chief executive, Edmund Truell, could not be reached for comment.

Pension Corporation's offer has been accepted by Telent's management, but they appear to have failed to inform the trustees - a situation that caused the trustees to write to the Telent scheme's 60,000 members.

If the takeover is successful it will be the fourth such buyout in recent months, following on from Pensions Corporation's acquisition of the off-licence chain Threshers and record company Thorn, and rival Citibank's capture of the Thompson Newspaper scheme.