Campaign to stop LV= takeover by Bain gathers pace ahead of vote deadline

It is seldom good news for an executive in the financial services sector when their company appears on the front page of the Daily Mail.

So one can only imagine how Mark Hartigan and Alan Cook, respectively the chief executive and chairman of the mutual life company LV=, must have felt on seeing the newspaper on Wednesday morning.

The Mail has been running a campaign on its City pages for some time in which it has been encouraging readers to sign a coupon opposing the takeover of LV= by the US private equity company Bain Capital.

What has propelled the story to the front page, though, has been the hardening cross-party opposition to the deal as a crucial members vote to approve it looms.

Lord Heseltine, the former Conservative deputy prime minister, and Ed Miliband, the former Labour leader, are among those quoted today by the Mail as being critical of the deal.

Opposition to the £530m takeover, which was announced in December last year, has intensified during the last week after it emerged that the 1.2 million members of LV= will receive a cash payment of just £100 each if the deal goes through.

The 297,000 members owning ‘with profits’ policies, who legally own the group, would only get an extra £52 worth of enhancements to their future pay-outs.

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These sums are fairly paltry compared with the average pay-outs received by members of former mutual life companies that have been changed status in the past.

For example, when Scottish Widows was bought by Lloyds Banking Group in 2000, the average pay-out to members came in at just over £6,000.

And Standard Life’s 2.4million members received an average pay-out of £1,700 when it shed its mutual status and floated on the stock market in 2006.

Not helping things has been the lacklustre way that the management of LV= have sought to sell the deal to members.

After LV= sold its general insurance arm to the German insurance giant Allianz in 2019, they put the remaining life business up for sale in June last year, arguing this would be the best outcome for an operation that had lost market share in each of the previous five years and that was deeply in need of investment.

That flushed out interest from 12 would-be buyers but Mr Hartigan has insisted the best deal on offer was one from Bain.

Many LV= members, however, would have preferred the company to have kept talking to another mutual, Royal London, which has recently indicated that it could revive its interest in its rival should members vote down the Bain deal.

There have also been suggestions that, having agreed what looks to some like a cut-price deal at the height of the COVID crisis, the management of LV= should have pushed for better terms now that the global economy has emerged strongly from the pandemic.

Rumours persist that Royal London’s offer was £10m more than that of Bain.

But Mr Hartigan told the Financial Times last week: “If anyone else had produced more money, we would’ve sold it to them.”

He followed this up by telling the Mail on Sunday last weekend that the Bain offer was “the very best we could achieve, the very best the board could achieve for their members”.

However, suspicions that LV= could have secured a better price have intensified following the management’s refusal to disclose how they arrived at the sums involved, although LV= itself says those details were shared with both the Financial Conduct Authority and the Prudential Regulation Authority at the Bank of England. Both regulators have given the transaction their blessing.

Gareth Thomas, the chairman of the All Party Parliamentary Group for Mutuals, has asked the FCA in particular to make clear whether Royal London’s offer for LV= was more generous than that of Bain. His group accused Mr Hartigan and Mr Cook in the spring of misleading LV= members.

Critics suspect Mr Hartigan, who was paid £1.2m last year, would naturally have a preference for the Bain offer because he stands to achieve rewards typical for the private equity sector once the deal is completed.

The past career of Mr Cook, meanwhile, has come under the microscope for a couple of reasons.

First is his past job as chairman of Highways England from 2010 to 2013, during which he was instrumental in the roll-out of smart motorways, the subject of another Mail campaign.

At least as explosive, though, is his earlier job as managing director of the Post Office from 2006 to 2010, when it began prosecuting sub-postmasters and sub-postmistresses, accusing them of stealing from the business.

Earlier this year, the Court of Appeal overturned convictions against 39 such people previously found guilty of theft and false accounting, prompting Paula Vennells, Mr Cook’s successor, to resign all of her board directorships.

Yet there are two sides to every story and the takeover does have some things in its favour. One is that Bain plans a £168m cash injection to support LV=’s generous final salary pension schemes.

Bain was also the only would-be buyer, according to Mr Cook, that has committed to keep open LV=’s three offices at Bournemouth, Hitchin and Exeter, which collectively employ 1,500 people.

Bain may also feel entitled to feel somewhat aggrieved at its characterisation by critics of the deal. Mr Thomas has accused it of being a “private equity shark intent on screwing the maximum profit for itself”. Its access to capital means that LV= will at last have the ability to invest in itself. A takeover by Royal London, which as a mutual may not have had the same easy access to capital, might well have led to less money being available to invest in LV=.

Nor have there been any suggestions that Bain has been anything other than a responsible owner of Esure, the insurer, which it bought in 2018.

Ultimately, the decision on whether to accept the offer will be made by LV=’s members, who can vote on the deal between now and 8 December, or during two online conferences to be held on 10 December.

Some three-quarters of those voting need to support the deal for it to go through but, given the ferocity with which the Mail is campaigning on the matter, it would be no surprise to see it voted down.

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