LV deal fails smell test

Any expectation that nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), might find a way to put sand in the wheels of the plan by the senior management of insurer LV to sell itself to private equity outfit Bain Capital cruelly has been dashed.

A four-page update from the FCA runs up the white flag. The City regulator states that it is not empowered by Parliament to consider ‘the form of ownership’ of the acquirer.

The FCA also lacked direct enforcement powers over London Capital & Finance where supervision fell outside the so-called perimeter. That did not prevent former chief executive Andrew Bailey and colleagues from being criticised over failings.

A more intrusive enforcer might at the very least let its views on private equity ownership of a former mutual with 1.16m members be known.

The Competition & Markets Authority had no direct powers to intervene in the Clayton, Dubilier & Rice takeover of Morrisons. It took the opportunity to spell out to MPs the risks, including the potential dangers of debt financing. These have become very obvious at Asda. An unfortunate aspect of the effort by chairman Alan Cook and chief executive Mark Hartigan to take the mutual private is the plan to railroad it through by changing the voting rules.

LV is asking the court to alter its articles of association to ease the passage of the deal. At present it requires 75pc of at least 50pc of members to approve a deal. This is intended to keep rascals at bay and, in the best mutual tradition, ensure members are heard. Under a rule change proposed it would be possible for 75pc of a small minority of members to approve the deal.

The court would make the ultimate decision but it would be nice to think that the FCA, which is ultimately a protector of consumer interests, was willing to line up in court in defence of the original voting structure. The LV deal is complex and, rightly, the FCA is demanding that LV steps up its communications with policyholders.

It also says it will be holding ‘senior managers’ to account for any subsequent problems should the interests of policyholders be compromised.

This in effect is asking Hartigan and his executive team to mark their own homework in a set-up in which they are expected to have a direct equity interest.

none of this passes the smell test. That ought to be the ultimate guide for regulators when lifetime savings are at stake.

Rickety Hut

NO ONE can accuse Matt Moulding, founder and executive chairman of The Hut Group (THG), of ignoring his critics. In a rapid-fire series of moves, triggered by fumbled capital markets day earlier this month, he has sought to clean up governance.

Moulding has discarded his golden share, dissolved a £100m personal loan deal with Barclays and is seeking to strengthen independent presence on the board.

Carelessly, the first new non-executive is not independent at all, since Andreas Hansson is a senior executive in Softbank, a key THG investor. The search for a non-executive chairman has begun but it won’t be easy. Credible City figures and industrialists will be wary of catching a falling knife.

The belief, shared on these pages, that a governance clean-up is the answer to Moulding’s problems is so far unproven.

The bigger questions look to be around the business model. On paper at least the core asset Ingenuity, THG’s open architecture tech platform, is going great guns, with revenues 131pc up year-on-year.

There is still no clear data on how this number is achieved because of the mystery of inter-company pricing.

Revenues may look good but investors don’t believe they are robust, hence the latest 20pc plunge in the shares.

What an embarrassment for Britain’s patchy market for new floats.

Bumpy landing

AFTER the onslaught from UK carriers over proposals for higher landing charges at Heathrow, highly paid chief executive John Holland-Kaye is asking customers and businesses to show sympathy to its greedy sovereign wealth fund and private equity owners, claiming a halving in its value.

The notion that the drop in value from £20bn to £10bn is anything but transitory and caused by the pandemic is a fiction.

The smart way to restore income is to avoid gouging users with higher charges.