Save LV from private equity sharks: members CAN vote against deal

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The next big battle with the private equity jackals, now that Morrisons has fallen into their hands, will be against one of the UK’s largest mutual insurers.

The bosses of LV, formerly the venerable Liverpool Victoria, intend to sell the historic company to the American barons on the takeover Bain Capital in a £ 530million deal. Their determination is met with opposition from deputies and other critics.

Chief Executive Mark Hartigan has been trying for more than a year to persuade regulators – and the 1.16 million policyholders who actually own the company – to back his potentially self-enriching plans.

Breaking with the past: LV bosses, formerly venerable Liverpool Victoria, intend to sell the historic business to the barons of US takeover Bain Capital in a £ 530million deal

He hopes a deal with Bain would put him online for a lucrative stake that would bring in millions if he made a profit from LV.

But critics fear that the deal, which would end the mutual status of one of the country’s most beloved financial firms, could be of low value to members, endanger jobs and lead to reduced labor. consumer choice.

A sale must be approved by regulators and the insurer’s 1.16 million insured members, who together own the company.

At least 75 percent of those who vote must support the deal and there must be a 50 percent turnout, making it imperative that every insured person exercise their democratic accountability if the deal is to be halted.

The question is whether a private equity sale is really in their best interest, especially since Hartigan turned down the opportunity to merge with another mutual, Royal London.

Royal London bosses were puzzled and believe LV made a bad choice for its members.

Hartigan argues that jobs would have been lost in a connection to Royal London – although private equity takeovers often result in drastic cuts.

So, will LV members be offered a good price for abandoning their property, with the prospect of strong future returns?

Or will they be sold downstream? At this point, it’s not clear because after more than ten months, members still aren’t sure exactly what offer will be put to them for a vote and are therefore in limbo.

LV’s board of directors, along with its Bain suitors, attempted to work out the details of the deal with regulators at the Financial Conduct Authority (FCA) and Bank of Bank’s Prudential Regulation Authority (PRA). England.

Assuming they don’t reject the deal, the outcome of those talks will determine exactly how much each of LV’s policyholders will get from Bain in return for giving up their stake in the business.

LV said any payment would only be “modest”.

The recovery is particularly crucial for the 340,000 policyholders with share in the company’s profits.

They took out savings plans in the hope of being with a company offering very long-term stability on contracts of 25 years or more, only to then be asked to transfer their savings to private equity, renowned for its short-termism.

Bain promises them a higher payout when their policies mature, but details are scarce on the ground.

One inescapable fact, however, is that under Bain the insurer will no longer be owned by its members but by a profit-hungry private equity firm.

We are far from the roots of LV.

Under the name Liverpool Victoria, it was founded in 1843 by William Fenton to give poorer residents the chance to organize funerals for their loved ones.

Staff would go door to door collecting penny bounties from their clients, and the company would then cover the costs of a decent funeral.

Its mutual status meant that all profits were shared among its member-owners – no City shareholder demanded that the company withdraw more money from policyholders to increase their returns.

From penny policies to billions

William Fenton founded Liverpool Victoria to give Liverpool's poorest residents the opportunity to organize funerals for their loved ones

William Fenton founded Liverpool Victoria to give Liverpool’s poorest residents the opportunity to organize funerals for their loved ones

Founded in 1843 by William Fenton, Liverpool Victoria – as LV was once known – was established to give the poorest inhabitants of Liverpool the opportunity to organize funerals for their loved ones.

Staff would go door-to-door around town collecting penny premiums from their customers, and the company would then cover the costs of a decent burial.

In 1930, LV handled over 13 million policies. It moved its headquarters to the large Victoria House in Bloomsbury Square in London, where it hosted the World Snooker Championships in 1970.

And in 1996, when LV acquired the Frizzell Group, the company moved to Bournemouth.

This agreement allowed him to move from life insurance into a whole new field – general insurance, which included policies such as home and car coverage. But since LV sold its general insurance business to Allianz for £ 1.3bn in 2019, its size has been reduced significantly.

In 2020, just months after Mark Hartigan took over as chief executive, LV revealed he was in exclusive takeover talks with Bain Capital – rejecting a rival offer from the Royal London mutual.

Every choice made by LV could be made in the best interests of its customers and members. In contrast, private equity has a reputation for brutal money-making tactics.

Hartigan, who received a salary and bonuses of over £ 1.2million in 2020, joined LV as chief executive in January 2020 just months before the deal was announced.

He is adamant that selling at Bain is the best way forward for LV members.

Unveiling the deal last December, he said: “The partnership with Bain Capital recognizes the opportunity to invest more to develop LV at a time when it is well positioned, increasing its market share, developing its products and marketing its products. resilient way, despite the pandemic.

“Although our corporate structure changes, our culture and values ​​remain the same. “

He and chairman Alan Cook argue that as a mutual it is difficult for LV to compete with big rivals who have access to big capital.

It’s a staggering about-face. A few months earlier, Cook had praised the insurer’s status as a mutual, saying: “The concept of mutuality and the importance of membership are at the heart of LV.

Despite his former passionate support of the mutual, Cook argued that due to the need for capital to invest, this was no longer an option for LV and his only choice was to be taken over.

LV received 12 formal offers of which Bain was judged the best. However, for a number of MPs and supporters of the mutuals, the proposed deal has raised serious concerns. Observers – and arguably policyholders – have remained perplexed by LV’s sudden need for capital. Some questioned the benefits for members.

Gareth Thomas, a Labor MP who chairs the All Party Parliamentary Group (APPG) on mutuals, said: “If the demutualization of Liverpool Victoria continues, a controversial US private equity giant will take over a UK company owned by clients with considerable financial assets.

“It’s easy to see how Liverpool CEO Victoria could benefit, but as demutualizations typically lead to poorer customer service and lower payouts, it’s far from clear how others will benefit.”

One concern is that in a debt-financed private equity arrangement, engagement with policyholders may be weakened.

Martin Shaw, an insurance veteran and managing director of the Association of Financial Mutuals, said clients of similar contracts in the past, such as Pearl Assurance, have fared badly.

“In the same way that LV members are promised now, clients of these past deals were promised that the company would be more secure and have better access to capital. It clearly was not.

“LV’s board has yet to explain how it will avoid the same fate as everyone else.”

Shaw added that ceding reserves accumulated at LV over hundreds of years to a private equity firm “seems wrong.”

Ultimately, LV members and policyholders will have the final say.

They should think long and hard before ceding their company to predators.

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