Major newspaper distributor issued warning by pensions watchdog

Smiths News thought it had put Tuffnells Parcels Express in the rear-view mirror when it sold the struggling delivery firm in May 2020. Three years later, Tuffnells collapsed into administration. And this week, the Pensions Regulator came knocking with a warning notice that could cost the newspaper wholesaler up to £3.5 million to plug the pension deficit of a business it hasn't owned since the start of the pandemic.

Welcome to the world of pension boomerang, where divesting a troubled subsidiary doesn't necessarily mean washing your hands of its liabilities. The regulator's pursuit of Smiths News signals a potentially far-reaching interpretation of corporate responsibility that should give dealmakers pause.

The long arm of the regulator

The weapon being deployed here is a financial support direction, or FSD. Unlike traditional enforcement actions, these regulatory tools don't require proof of wrongdoing or negligence. The regulator simply needs to establish that a company was 'connected' to an underfunded pension scheme. The bar for intervention is deliberately low.

What's striking about this case is the timeline. Smiths News sold Tuffnells more than three years before its collapse in June 2023. The regulator is effectively reaching back nearly a decade to when Smiths first acquired the business, suggesting that pension exposure from corporate acquisitions can carry a remarkably long tail.

For finance directors already losing sleep over warranty claims and indemnity periods, here's another item for the worry list. The £3.5 million figure represents the maximum claim, and according to Smiths News, the warning notice identifies 'other parties connected to Tuffnells' as potential targets.

The regulator appears to be casting a wide net, potentially pursuing multiple former and subsequent owners. One might reasonably ask whether the buyers who took Tuffnells off Smiths' hands in 2020 bear a greater share of responsibility.

Corporate defence meets regulatory reality

Smiths News has mounted a predictable defence, asserting through its board that it 'acted reasonably throughout its time as parent of Tuffnells' and was 'an overall net contributor of funding' during its ownership. These claims await scrutiny by the regulator's case team and subsequent determinations panel.

But here's the uncomfortable truth for Smiths News: if the regulator believed the company had acted entirely appropriately and fulfilled its obligations, this warning notice wouldn't exist. FSDs don't get issued on a whim. The very fact that The Pensions Regulator is pursuing this action suggests it has identified grounds through inadequate funding arrangements during ownership, the terms of the sale in 2020, or subsequent events that left the pension scheme vulnerable.

The market's response was swift if not dramatic. Shares in Smiths News, which has been delivering newspapers to retailers across England and Wales for more than two centuries, fell 3 per cent in Monday morning trading. For a wholesaler operating on thin margins in a declining print media market, a £3.5 million hit would be material even if shared among multiple parties.

Hidden liabilities in the deal pipeline

The Smiths News case arrives at an awkward moment for UK dealmaking. According to figures from the Office for National Statistics, mergers and acquisitions involving UK companies totalled £44.2 billion in the third quarter of 2024 alone. Each of those transactions involves pension due diligence, but this case demonstrates how those assessments may need to factor in longer-term regulatory risk.

What's particularly concerning for buyers and sellers is the discretionary nature of FSDs. Traditional deal protections typically expire within two to seven years. Pension liabilities, as Smiths News is discovering, can apparently circle back long after those mechanisms have lapsed. That temporal mismatch creates a blind spot in M&A risk management.

Private equity firms, which often acquire and divest businesses on three-to-five-year cycles, may find this precedent especially uncomfortable. If regulators can pursue former owners years after exit, it complicates not just individual transactions but entire fund structures built around defined holding periods.

The regulatory philosophy here isn't entirely without merit. Pension scheme members, often lower-paid workers who've contributed faithfully for decades, deserve protection when corporate structures fail them. The Pensions Regulator's willingness to pursue multiple parties reflects a pragmatic approach to scheme rescue. Someone needs to pay.

But the precedent being set here extends regulatory reach into territory that will make already complex transactions significantly more fraught. Corporate counsel advising on disposals of businesses with defined benefit pension schemes will need to price in tail risk that extends well beyond traditional deal timeframes. Sellers may demand higher prices to compensate. Buyers may walk away entirely.

The determinations panel hasn't yet ruled on whether Smiths News will actually face the full £3.5 million claim, a partial amount, or potentially nothing at all if its defence succeeds. That decision, when it arrives, will clarify just how aggressive The Pensions Regulator intends to be in pursuing former owners.

Other companies with historic connections to businesses now struggling with pension deficits will be watching closely, and possibly instructing their legal teams to review old transaction documents with fresh urgency.