Walgreens to pay £1bn to offload Boots pension scheme

The US pharmacy chain and Boots owner is reportedly set to pay £1bn to strike a deal, which would dissolve its responsibility for the UK retailer’s huge pension scheme.

According to The Sunday Times, the hefty potential payout “underlines Walgreens’ determination to restart the Boots sale process”, which could begin within the next six months.

The Times reported last week that Walgreens is close to a deal with Legal & General to take over more responsibility for its £5bn legacy staff pension scheme, which could reinvigorate shelved plans to sell the chain.

Walgreens is understood to be negotiating a pension risk transfer deal with the financial services provider, taking advantage of rising bond yields that have propelled the traditional defined benefit scheme into a surplus.

A deal would end Walgreens’ guarantee of the Boots pension scheme, which has been complicating any potential sales.

Last year, Walgreens unexpectedly halted plans to sell Boots due to an “unexpected and dramatic change” in market conditions.

The US health and beauty giant expected to generate as much as £7bn from a sale, but offers were said to be closer to £5.5bn.

However, Boots without the risk of its pension scheme may be a more attractive deal for potential buyers.

Pension risk transfer deals include an insurer taking full or partial responsibility for paying all pensions, in exchange for the assets and liabilities of the pension scheme.

Boots’ pension scheme is reported to have liabilities of £5bn and assets of £5.5bn, giving it a surplus by one measure of £590m as of August last year, but the surplus is expected to have increased due to soaring bond yields. 

Walgreens said: “Walgreens Boots Alliance takes its responsibilities to the Boots pension scheme very seriously and often works together with the trustees of the scheme to review options to support the scheme and its members, some of whom are current employees of Boots.

“This practice will continue. An ongoing, proactive approach to managing the scheme has ensured a well-funded, healthy scheme.”