LV to be run from tax haven after £530m deal
As private equity predator launches last-ditch bid to win over members . . .
INSURER LV will be owned by a firm based in an offshore tax haven if private equity sharks secure a £530m takeover next month.
LV bosses have agreed to sell the 178year-old mutual to Bain Capital – but the deal needs the backing of members.
It has now emerged that the American buyout firm, which is based in Boston, has registered a shell company in Jersey to carry out the acquisition.
The vehicle, called BCC Blake Bidco Limited, was registered in December last year leading MPs to question whether LV will maintain the values of a mutual and pay as much tax in the UK.
Private equity firms often use complex webs of offshore companies in the Isle of Man, Jersey and the Cayman Islands to take advantage of lower taxation and disclosure requirements.
The revelation caused Labour MP Gareth Thomas, the chairman of the all-party parliamentary group for mutuals, to write to Bain’s frontman, Matt Popoli, to demand he reveal who its backers are.
Thomas told the Daily Mail: ‘Setting the company up offshore, rather than basing it at one of their UK offices, doesn’t sit well with the idea that Bain wants to maintain mutual values.
‘It calls into question whether the new owners really intend to maintain offices in Hitchin, Exeter or Bournemouth, and what levels of taxation the firm will pay in the future.’
Sources close to Bain said the company will still be a UK tax resident and pay corporation tax on all profits.
In the letter, seen by the Mail, Thomas demanded that Bain release the names of the prospective board and pledge not to use the buyout as a launch pad to buy more mutuals in the UK.
He also questioned whether Alison Hutchinson, a board member of LV, has been approached about the possibility of demutualising the Yorkshire Building Society, where she is currently vice chairman. LV was founded in 1843 to allow Liverpool’s poor to avoid the indignity of a pauper’s funeral.
Members have a little over two weeks to vote on the deal, which has drawn opposition from across Westminster and the City.
Bain has been criticised for offering just £100 to LV’s policyholders and owners, while failing to make guarantees on jobs.
Bain Capital said: ‘We will take time to consider and fully reply to Gareth Thomas in due course. We do note, however, that the letter contains a number of wrong and misleading assumptions.’
THE private equity predator hoping to buy LV has warned members they may get nothing unless they back its £530m takeover.
With just over two weeks to go to secure a deal, US buyout group Bain Capital insisted ‘the values of LV are not going to change’ under its ownership.
But it emerged yesterday that LV will be taken over by an offshore firm, based in the tax haven of Jersey, if Bain wins control.
While Jersey has a 0pc corporation tax rate and lower requirements on company disclosures, it is understood the new owner of LV will still file UK tax returns and be subject to UK tax.
The latest revelation follows weeks of criticism over Bain’s proposals, with critics slamming the ‘paltry’ £100 offered to most LV members to hand over the 178-year-old mutual insurer to private equity.
Bain and LV have also been criticised for a lack of transparency over a host of issues including the fees being paid to advisers, what the deal means for jobs and an alternative offer from fellow mutual Royal London.
Matt Popoli, Bain’s global head of insurance, said: ‘Our transaction will result in the highest amount of payout to policyholders – full stop.
‘There is no other proposal that will result in higher payout to policyholders. There have been these catchy headlines.
‘There are a lot of soundbites, but, if you actually look at what is in the best interest of policyholders, it is really hard to argue that this transaction isn’t in their best interests.’
He added: ‘Short of our deal I don’t think the members end up getting any kind of payouts.’
LV is currently owned by its policyholders, meaning it is run with only their interests in mind and not to generate cash for a shareholder. They are now being asked to vote on the deal, in a process which will end on December 10.
But a number of key questions remain unanswered – meaning members are voting without all the information they need.
WHAT WOULD MEMBERS GET UNDER RIVAL OFFER?
BAIN is offering just £100 to most LV members, along with a modest uplift to the final payout for those who hold so-called with-profits policies.
Its latest claim is that policyholders could get nothing if they turn down its deal and that ‘there is no other proposal that will result in higher payout’.
But sources involved in the bidding process for LV suggested this claim was misleading. Other suitors who wanted to buy the insurer – including fellow mutual Royal London – were turned down before they got to the stage where they could start calculating how much members might have been handed.
They said Bain has no way of knowing whether other bids may have resulted in more generous payouts and could not say that its bid certainly offered the best outcome for members.
WHY WON’T LV ENGAGE WITH ROYAL LONDON?
LV was in discussions with Royal London about a takeover for around eight years – long before the insurer’s current chief executive Mark Hartigan or chairman alan Cook joined.
After Cook joined in 2017, he opened the bidding process up to a swathe of suitors, and Royal London and Bain were the last two standing with near-identical bids.
LV bosses said they picked Bain because its offer removed some risks that with-profits members would otherwise have had to bear. Sources close to Royal London said they were willing to offer £10m more than Bain to cover these risks.
But critics have also raised eyebrows at the fact that Bain’s offer will see Hartigan and Cook keep their jobs, which they would have lost under Royal London.
As the backlash against the Bain deal mounted, Royal London urged LV to reopen discussions. It is even willing to construct a deal which would allow LV to remain a mutual.
But so far LV has refused to engage, insisting that Bain’s deal is best.
WHAT DOES BAIN DEAL MEAN FOR HARTIGAN?
LV has been slammed for repeatedly saying its bosses would not financially benefit from the deal.
Though they will not bank a windfall directly in the takeover, Cook has signed to keep his £205,000-a-year job for at least another two years. Hartigan is likely to be kept on as chief executive, though he has not yet signed a contract.
He has admitted this would be likely to mean a pay rise from the £1.2m he earned last year. Bain could also give him an equity stake in the company, potentially worth millions.
Neither Bain nor LV has been able to provide any transparency on what Hartigan’s future pay deal might look like.
ARE JOBS SAFE?
LV has talked down Royal London’s offer by saying it would be likely to involve swathes of job cuts. But it is understood that even under Bain, Hartigan is planning to slash jobs at LV as it invests in technology.
One industry source said it was ‘hard to believe’ that a private equity firm – they are notorious for axing jobs as they attempt to wring businesses for money – would be more generous to workers than a fellow mutual.
WHAT DOES LV OWE ADVISERS IN FEES?
THE bill which LV will have to pay out to its advisers – including investment bank Fenchurch advisory, City spinners FTI Consulting and law firm Clifford Chance – is likely to hit the tens of millions.
While this is coming out of members’ money, LV has refused to disclose what the total is. It has said it will reveal the sum if the deal with Bain completes, which would be in around a year if it is passed by members.
But by then, it will be far too late to inform policyholders who are still trying to make up their mind over the takeover.