Trustees demand £1bn pension payout
Private equity firm KKR's recommended£11.1 billion bid for Alliance Boots could be in danger, because the retailer's pension trustees are demanding a£1 billion payment.

The trustees, led by former Boots director John Watson, have requested the sum because they expect a big increase in borrowings as a result of the buy-out. AB Acquisitions - the bidding vehicle of KKR and Stefano Pessina - is understood to be funding the bid with£8 billion worth of debt.

AB said in a statement: 'We recognise the importance of ensuring that all of the Alliance Boots pensions schemes are prudently funded. We have had several productive discussions with the trustees and their advisers and, while no agreement has been reached to date, we believe that we have made substantial progress towards this goal. We will continue to engage positively with the trustees over the coming weeks.'

Watson said to ensure pensions are protected, 'prudent funding' requires the scheme to be funded on a self-sufficiency basis. The trustees have said they want the deficit to be paid by cash over a number of years and suitable security to be put in place for the future.

This year, the health and beauty chain is forecast to have a deficit of£305 million. However, guidance released by the Pensions Regulator yesterday said trustees must be far more conservative in cases of highly leveraged buy-outs. The regulator said: 'Where there is a weakening of the employer covenant as a result of a corporate transaction, for example in a highly leveraged transaction, trustees should consider whether to seek a materially enhanced level of mitigation in excess of [the expected deficit].'

AB is understood to be finalising a deal with the trustees before confirming takeover plans to shareholders this weekend. However, the new pension rules could make it tougher for private equity firms to buy UK companies in future.