Moment of truth for LV
Later today, we will learn whether LV, Britain’s second largest mutual insurer, has succeeded in persuading its 1.2m members to sell out to Bain Capital, a US private equity firm. Members have been bombarded with figures ostensibly proving they will be best off with Bain.
they have not, however, been given proof, only assertions.
Chief executive Mark Hartigan and chairman alan Cook have been asking members, politicians and the media to take their arguments on trust. Yet trust requires openness and transparency. Both have been lacking.
It is still not clear why a bid from fellow mutual royal London was ruled out.
Claims by Hartigan and his advisers that LV members would inevitably lose their mutual rights under royal London turned out not to be entirely correct. In fact, royal London has said it is prepared to consider a deal that would preserve mutual benefits for LV savers, if it re-enters the fray.
this was not the only example of LV chiefs appearing to be economical with the actualite. they also gave the impression a minimum turnout was not needed for the Bain deal to go through. In reality, they have been trying to gerrymander by asking members to agree to waive a requirement for 50pc of members to cast their vote.
One thing on which everyone can agree is that life assurance companies face tough challenges. Post financial crisis, regulators insist they must have bigger capital cushions which is a particular problem for mutuals that have no shareholders to tap.
LV appeared to have dealt with this when it sold its general insurance business to German giant allianz for a total of £1.1bn in a series of transactions that completed in May 2019. there has never been a satisfactory explanation of why a sale, which bosses claimed was required because LV was ‘subscale’ with an ‘insufficiently strong capital structure’, was deemed necessary so soon after the deal with allianz. as well as unanswered questions, inconvenient facts were not volunteered, but had to be truffled out.
these included such salient details as the £43m in fees members will have to pay deal advisers and the interesting point that, under Bain, the business will be owned through a Jersey tax-haven company.
even the fact that members would have to wait until October to receive their miserly £100 was tucked away in a lengthy document. LV was reluctant to release the strategic review which set out the rationale for the sale and only published some information very belatedly last month, after political and media pressure.
THIS kind of behaviour does not inspire confidence in the deal. If it really is so wonderful, why the half-truths, the withholding and the evasion? employees have asked members to back Bain because they believe their jobs will be protected. that is not a plea lightly to be dismissed, but I’m sorry to say it would be unwise to set much store by warm words from a private equity firm on that front.
this vote is a big moment, but however it goes, uncertainty about LV’s future will remain. a favourable result for Bain is by no means sure to take savers to the sunlit uplands. and despite painting itself as the respectable face of private equity, it may not turn out to be a responsible long-term owner after all, but could sell on in a few years, plunging savers into a fresh round of upheaval. even assuming Bain is utterly sincere in its regard for LV staff and policyholders, it will always put its own self-interest and its own profits first: that’s the private equity business model.
a ‘No’ will send LV back to the drawing board. It will amount to a no confidence vote in Hartigan and Cook, so a credible industry heavyweight chairman and chief executive will need to be installed. regulators, who have as usual stood on the sidelines, will need to ensure members’ interests are protected in any subsequent bids.
Because it did not involve a quoted company, the Bain deal was not overseen by the takeover Panel, which ensures bids for stock market listed firms are conducted according to a set of rules. that is unsatisfactory for such a large mutual.
Voting down the deal will give LV policyholders the satisfaction that they have struck a blow for mutuality.
they will also have given a bloody nose to arrogant bosses and private equity barons, who assumed they could bulldoze members into compliance.
If the vote goes against them, LV’s top brass have only themselves to blame.