Members of historic insurer LV are furious up to £43million of their cash was frittered away on the ‘underhand’ failed deal with a US private equity shark.
Independent experts employed by LV had estimated the firm’s 1.2million policyholders would end up forking out the sum to cover advisers’ fees and other costs associated with the deal.
Even though the £530million sale to Bain Capital collapsed on Friday after failing to gain approval from enough members, millions of pounds of savers’ cash will still be used to cover the costs of the unwanted deal.
LV refused to disclose exactly how much of the £43million had already been spent and how much would be saved because the deal fell through.
But as the firm now hunts for a new buyer, the bill to members could escalate further as LV’s public relations advisers, lawyers and investment bankers keep raking in their fees.
There are now calls to force LV to repay customers’ money used in the failed attempt.
Alan Cook (pictured) was the chairman of LV. Mark Hartigan, chief operating officer at LV, made the decision to sell LV in 2012 to Bain. The firm needed cash to grow its business.
LV was a mutual over its 178 year existence. This meant that it was owned and managed entirely by customers, rather than a greedy shareholder.
But the firm’s chairman Alan Cook and chief executive Mark Hartigan decided last year to sell LV to Bain, claiming the firm desperately needed money to invest in its expansion and that Bain’s bid provided the best opportunity.
Members were suspicious about the deal – many had entrusted LV with their savings because of its long mutual history – and did not like the idea of a rapacious private equity firm buying the business.
LV’s bosses were accused of opacity as they urged members to back the Bain deal but refused to disclose the details of rival bids or how their lucrative pay packages might rise under Bain’s ownership.
Members – who had been offered £100 each to back Bain – voted the deal down on Friday, with 69 per cent giving the green light.
It was less than the required 75%. As the Daily Mail has campaigned against the trend of private equity companies buying undervalued businesses for profit, the vote was a success.
But customers are angry Bain’s deal was allowed to get that far and argue regulators should have stepped in sooner to improve the transparency of LV’s sale process.
Labour MP Gareth Thomas, who chairs the all-party parliamentary group on mutuals, said: ‘Thousands of families who invested with LV will rightly now be very angry that so much of their money has been wasted on a deal they never gave their consent to start and which regulators should have stopped.
‘We now need urgent reform of the law to protect the savings of families from unnecessary attempts to break up members’ mutuals.’
John Higgins, 85, who has been invested with LV for around 50 years, said the proposed sale to Bain was an ‘underhand deal supported by slick advisers and an extremely slick PR campaign’.
He suggested they should be forced to repay customers’ money which had been ‘wasted’ on the deal. Shortly after the results of Friday’s member vote, Mr Cook announced he would step down as chairman of LV.
But Peter Hunt, of consultancy firm Mutuo, called for the entirety of LV’s board to ‘resign in shame’ over the failed deal.
He added: ‘There is simply no accountability with the board treating the mutual’s money as their own.’
LV declined to comment but it has said the sale process was only kicked off with the firm’s best interests in mind.