Alan Cook, chairman of LV opened up the bidding process to a bunch of suitors. Royal London was the first and Bain the second.
The private equity predator hoping to buy LV has warned members they may get nothing unless they back its £530million 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. Yesterday, it was revealed that LV would be taken over by an off-shore firm based in Jersey’s tax haven.
Jersey’s corporation tax rate is 0 percent and disclosure requirements are lower in Jersey. However, the UK will continue to tax the new owner. 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 are also being criticized for not providing transparency on a number of issues, such as the fees that advisers receive and the implications for workers. They have been compared to a mutual offer by 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. These headlines are catchy.
‘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, which is owned currently by its policyholders means it is managed with solely their interest in mind and does not generate any cash for a shareholder. The policyholders are being asked to vote for the deal. This process will close on December 10.
But a number of key questions remain unanswered – meaning members are voting without all the information they need.
Mutual: 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
How would they be treated if there was a competitor 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’.
However, sources familiar with the bidding process suggested that this claim was false. 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.
Bain could not be certain that other bids resulted in higher payouts, and they said it has no idea if the bid offered members the best outcomes.
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.
Cook joined the bid process in 2017. Royal London and Bain were among the few remaining with close-to identical offers.
LV leaders claimed that they chose Bain as it removed certain risks with-profits members might have to take. Sources close to Royal London said they were willing to offer £10million 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.
Royal London urged LV not to reopen negotiations after the Bain deal was criticized. The Royal London is willing even to negotiate a deal to allow LV and its mutual partners to stay together.
But so far LV has refused to engage, insisting that Bain’s deal is best.
Hartigan: What is the Bain Deal?
LV was repeatedly accused of saying that its bosses wouldn’t financially gain 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 will likely be retained as chief executive. However, he hasn’t yet signed a contract.
He has admitted this would be likely to mean a pay rise from the £1.2million he earned last year. Bain might also get an equity stake in company that could be worth many 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. However, Hartigan plans to slash LV jobs as the company 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.
How much does lv owe advisors 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. The company has indicated that it will disclose the amount if Bain’s deal goes through. If approved by members, this would take around one year.
However, by that time it would be too late for policyholders still trying to decide on the acquisition.
Get your opinion heard at LV
We are encouraging LV members, customers, or others, who would like to see it retain its mutual status, rather than be bought out by private equity, to write to it.
The wording of the Daily Mail’s City pages letter could be used (pictured below).
You can find the text below and copy it into a new letter.
You can send it to Alan Cook (Chairman of LV=), Liverpool Victoria County Gates Bournemouth BH1 2NF
Dear Alan Cook,
I urge you, the undersigned to reconsider your decision of selling LV= to Bain Capital. Instead, keep it in its mutual status.