LV= sale to Bain might have gone through but for its board’s blunders | LV=
A triumph for the mutual movement? Well, a messy triumph at best. The £530m deal to sell LV= to private equity firm Bain Capital is dead, but 69% of votes were cast in favour. Such are the perils of requiring a 75% supermajority. Sometimes you end up with a muddle.
But the outcome is definitely a defeat for an LV= board that failed to pitch its case coherently, ignored the swelling opposition to the takeover until too late and never truly grasped that a US private equity takeover of a mutual organisation would stir strong feelings. Rather than depart after trying to find “a way forward”, Alan Cook, the chairman, would do better to go immediately. His position looks untenable.
Cook & co’s first mistake was not to seek a formal mandate to sell LV=, or the Liverpool Victoria Friendly Society as it was known in less funky times. Members of mutuals are not like shareholders in a public company. Yes, those with savings in the core “with-profits” investment fund are there for the returns, but many also place an intangible value on being part of an organisation run for the benefit of its members. You can’t take that spirit of independence for granted.
After unveiling the Bain deal a year ago, the board’s second error was not to explain its rationale in detail. The bald declaration that “business as usual does not work” was too lofty. Hadn’t LV= just sold its general insurance business, meaning car and home policies, to Allianz for £1.1bn? Wasn’t that sale supposed to shore up the capital position?
And how, after 178 years in existence, could the basic demutualisation payout to members be as little as £100 a head? Since Cook and chief executive Mark Hartigan, who was paid £1.2m last year, were slated to continue under Bain’s ownership, it seemed a case of business as usual for them.
As it happens, the duo, when they belatedly engaged with their members, had some decent counter-arguments. The basic £100-a-head wasn’t as miserly as it seemed because the 270,000 with-profit members, as opposed to the 1 million holders of life insurance policies, would get more.
The standalone prospects were also genuinely uncertain. The life and pensions game is competitive and long term. If LV=’s spare capital from the Allianz disposal were to be directed at expansion, many of the elderly “with-profits” members might not live long enough to enjoy the gains. If those arguments had been made at the outset, 69% support might have become 75%.
Now the strategic conundrum will be revisited. The most likely outcome is a deal with Royal London, the fellow mutual that has been muttering mischievously in the wings in recent weeks and says it has now tabled a proposal that is different from the one that LV’s board rejected a year ago in favour of Bain.
A tie-up with Royal London does indeed look the most natural fit, especially if membership rights can be carried over. But the process of getting to this point has been shambolic.