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.
Bain has been showing members figures that supposedly prove they are the best. However, they have only been provided with assertions and not proof.
Alan Cook, chairman and chief executive Mark Hartigan have been engaging members of parliament and the media in trust discussions. Transparency and openness are essential to trust. They have both been missing.
Lack of proof: LV Members have been bombarded with figures ostensibly proving they will be best off with Bain
It’s still unclear why Royal London, a mutual bide, was not considered.
Hartigan’s and his advisors claimed that LV members would lose mutual rights under Royal London. However, this was not the case.
Royal London said that it would be open to negotiating a deal which would maintain mutual benefits for LV-savers, if necessary.
This is not the first instance where LV chiefs appeared to be economical using the actualite. A minimum turnout wasn’t required for the Bain deal, they also suggested.
They have actually been trying to gerrymander, asking members to accept a waiver of the requirement that 50% of their members vote.
Everyone can agree that life insurance companies are facing tough challenges. Regulators insist on greater capital cushioning after the financial crisis. This is especially important for mutuals without shareholders.
LV appeared to have dealt with this when it sold its general insurance business to German giant Allianz for a total of £1.1billion 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 ‘sub-scale’ with an ‘insufficiently strong capital structure’, was deemed necessary so soon after the deal with Allianz.
Inconvenient facts, as well as the unanswered queries, were not shared, but needed to be tangled out.
These included such salient details as the £43million 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 refused to publish the strategic review that explained the reasons for the sale. It only released some details last month after pressure from media and political leaders.
This behavior does not encourage confidence in the deal. This is a wonderful deal, but why are there half truths, withholdings and evasions?
Bain employees have asked their fellow workers to support them because they feel that their jobs will be preserved. 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. Bain will not win the vote, but it is unlikely that savers will be able to move to the sunshine-lit highlands with a favorable outcome.
It may not be the responsible face of equity. However, they could still sell in a few more years and plunge savers into another round of turmoil.
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. Hartigan/Cook will lose their confidence votes. To ensure that LV is able to move forward, Hartigan/Cook will have to install a respected industry executive and chairman.
Regulators, who have as usual stood on the sidelines, will need to ensure members’ interests are protected in any subsequent bids.
Bain did not deal with a quoted firm, so the Takeover Panel was not involved in the transaction. This ensures that stock market listings firms bid according to established rules. It is disappointing for such an important mutual.
Voting to reject the agreement will allow LV policyholders to feel that the two of them have reached a deal for mutuality.
These men will have also given bloody noses to arrogant bosses as well as private equity barons. They assumed that they were able to bully members into submission.
If the vote goes against them, LV’s top brass have only themselves to blame.