Saturday, July 31, 2010

Is the world-famous Wedgwood Museum under threat as a result of ill-drafted Pension Fund legislation?

Wedgwood's Portland Vase, 1789

It's a familiar scene in those wildlife documentaries on the Discovery channel — a pack of mangy, slavering hyenas lope around a herd of wildebeest, eyes glued to the frailest family member as it struggles to keep up with its sturdier older relatives. The wildebeest herd senses danger, gets skittish and starts to canter away; the hyenas sniff fear and close in. The young wildebeest panics, staggering around in circles, helplessly isolated. A couple of seconds later he's on the ground being dismembered by ravenous predators.

When it comes to the modus operandi of your average private equity group, I prefer this analogy to the heroic sporting metaphors trotted out by the likes of Michael Psaros of US-based private equity group KPS Capital Partners, who recently waited in the long grass while Ireland-based ceramics and glass business Waterford Wedgwood struggled to stay on its feet. At the given moment, KPS moved in. Blood everywhere.

"We are a hard-core, full body contact, operations-driven turnaround operator," a triumphant Psaros told the Telegraph in March 2009, doing his best to sound like a gung-ho marine in a war movie. The KPS "turnaround" meant picking the flesh from the insolvent Wedgwood Waterford and leaving the carcass of debt for others to worry about (standard practice out in the corporate bush).

Among the bones left behind was a pension fund deficit of around £134 million.

It subsequently emerged that five employees of the Wedgwood Museum Trust Ltd., (a wholly separate charitable entity that runs the Wedgwood Museum in Barlaston, Stoke on Trent), had their pensions in the Wedgwood Waterford pension scheme. It now seems that the the Wedgwood Museum itself might be vulnerable.

A royal visit to the Wedgwood factory
Evidently an obscure and complex piece of pension fund legislation — (ironically originally drafted to protect pension funds from fraudulent practices) — means that the Wedgwood Museum Trust could be liable for the whole £134 million pension deficit left over after the sale of the Wedgwood Waterford business.

I'd spell this out for you, but I'm not too strong on particle physics. Even Simon Wedgwood, a descendant of the great Josiah Wedgwood, was at something of a loss to explain the masonic intricacies of the legislation when we spoke earlier today.

But what it means, in essence, is that the future of the Wedgwood Museum could be endangered if the Pension Protection Fund (the body established to provide a guaranteed minimum level of pension payments to members of eligible pension funds in cases like this) refuses to bail out the pension fund deficit.

In such an eventuality, the Wedgwood Museum collection — an unrivalled collection of ceramics and glass — could be lost to the nation and its assets sold to meet the pension deficit. Or, perhaps more likely, the nation might be asked to stump up to buy the collection in order that the Pension Protection Fund is spared having to foot the bill. Either way, the outlook seems bleak.

The Wedgwood Museum website recently posted the following comment:

"Five of the Wedgwood Group Pension Plan's 7000-member scheme were employees of the Museum Trust when the Wedgwood companies became insolvent last year, leaving a large deficit in the Pension Plan. As a result, the Museum Trust is now deemed to be liable for the shortfall. The Museum's Trustees are in discussions with a wide range of stakeholders as to how the Trust's internationally renowned Designated Collections can be preserved, and are determined to ensure the survival of the Wedgwood Museum."

Meanwhile, one assumes that Wedgwood Waterford is now benefiting from the €100 million that its new owners KPS Capital Partners promised to inject into the company, which includes not only Waterford crystal glass and Wedgwood ceramics, but historic brands such as Royal Doulton china.

Having bought it out of administration, Michael Psaros reckoned the business would be profitable in twelve months. "The team will expand Waterford Wedgwood into 'huge untapped' emerging markets – India, China and Russia," Psaros told the Telegraph. "Administration is a pedestrian event, not even worthy of being talked about."

It is when a historic museum collection is under threat of extinction.



Images
Top left: Josiah Wedgwood's copy of the Portland Vase, 1789.
Lower right: A royal tour of the Wedgwood factory