Intellectual Property Funds Pensions

The Challenge

The engagement involved TUI Travel Plc, one of the world’s leading travel companies operating in over 180 countries with 30m customers in 31 key source markets. TUI Travel Plc was faced with a large pension deficit. Occupational pensions are at a crossroads. With UK defined-benefit structures (pension plans in which employee benefits are determined by a set formula not investment returns) known to be heavily in deficit at the time, companies were under increasing pressure from regulators, unions, workers, and the media to address the funding gap.

A welcome development is the use of intellectual property (IP) and intangible assets and/or its income streams to provide security to pension plans. Trustees are increasingly willing to take patents, trademarks, and copyrights as security against pension liabilities, thus reducing the cash contribution requirement and potentially improving overall balance sheet value.

Pensions taking security or acquiring IP solves the unsecured creditor problem and can provide a cash injection to the company. Pension funds securing IP can become a secured preferential creditor. Arrangements protect a company from distress and maintain ongoing contributions.

The Solution

VRG undertook a brand valuation of Thomson and First Choice (the 1st and 3rd ranked brands in the sector) and subsequently presented and defended the valuation to secure payments to plug TUI Travel Plc’s pension deficit.

In presenting its innovative solution, TUI Travel Plc faced heavy legal and technical scrutiny and the proposed plans had to be sold into eight different pension groups and as such were subject to review by the trustees and their advisors. Experience with such client situations in practice underlines that the valuation of IP for employer covenant assessment must fully communicate that the IP and its valuation has the ability to meet such obligations.