Asda-owner Walmart clears path to float with £4bn pension deal

17 October 2019, 18:09 | Updated: 17 October 2019, 19:25

The American owner of Asda has struck a deal to offload nearly £4bn of the UK-based supermarket chain's pension liabilities, removing a hurdle to a standalone stock market listing.

Sky News has learnt that Walmart and Asda's pension trustees have agreed a £3.8bn pension buy-in with Rothesay Life, a specialist insurer of corporate retirement schemes.

The deal, which will be among the largest ever agreed with a British company, is expected to be announced by the end of the week, and possibly as soon as Thursday evening.

A source close to Asda said the deal with Rothesay represented another step towards the demerger of the supermarket chain following its failed attempt to merge with rival J Sainsbury.

Under the agreement, Rothesay will take over responsibility for paying retirement benefits to roughly 12,000 members of the Asda Group Pension Scheme.

An insider said that Asda was likely to make a one-off payment into the scheme of just under £1bn, with a full buyout of the plan a longer-term objective.

The announcement will come amid a blizzard of deals involving the insurance company, with National Grid and Telent having announced pension risk transfer transactions with Rothesay in recent weeks.

The privately-owned group now manages more than £50bn in assets.

The Asda deal will be significant because it removes one of the financial uncertainties on its balance sheet as it prepares to court investors to back a separate listing in London.

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Roger Burnley, Asda's chief executive, said during the summer that Walmart was "minded" to pursue an initial public offering and that it would probably take between two and three years.

A private equity-led takeover of Asda, which was bought by Walmart in 1999 and employs 150,000 people, also remains a possibility.

A demerger of the supermarket, which positions itself as a provider of staple products at everyday low prices, will come during a period of intense competition in the industry.

The German discounters Aldi and Lidl have been eating into Asda's traditional market for several years.

Asda's pension buy-in arrangement comes at a time of tension over the company's approach to new employment contracts, with thousands of employees facing the sack next month unless they agree to sign them.

Asda and Rothesay declined to comment.