THIS week sees decision day for the ordinary people who will decide the future of one of Dorset’s most famous employers.

The customers who own LV= will decide whether to approve the board’s proposals to sell it for £530million to the US private equity firm Bain Capital.

Many of those will already have voted ahead of the crucial special meeting this Friday, December 10.

They will be making their decision under intense scrutiny, with politicians from Lord Heseltine to Ed Miliband voicing opposition, and the Daily Mail leading a campaign to stop the sale going ahead. 

 

What is being sold?

Your car or home insurance policy might have the LV= logo on it, but that is not the business at stake. The general insurance arm of LV= was sold for £1.1billion to Allianz in a deal that was completed in 2019.

The current proposal involves the other part of the operation – the life, pensions and investments firm which the chief executive describes as the “rump” of the business. It is a mutual organisation, owned by the customers, or members, who have policies.

 

How did we get here?

According to LV=’s current chief executive, Mark Hartigan, the business’s current situation can be traced to 2016. That was when the European Union law known as Solvency II laid down requirements on how much money insurers must hold to reduce the risk of insolvency. “The only way to repair the balance sheet and meet our new capital commitments under Solvency II was to sell the larger part of our business, the general insurance business,” he told the Daily Echo.

A lot of the £1.1bn sale price was transferred into the general insurance business. More went to meet liabilities and costs, and some was put aside for holders of with-profit policies.

But the life, pensions and investment business was losing market share and not covering the cost of new business.

The chief executive, chief operating officer and chief financial officer all left at the start of 2020 and Mr Hartigan was brought in “to make a better commercial outcome”.

“What was clear was that if we were to get a penny from a third party, we had to demutualise,” he said.


What is Bain Capital?

Bain Capital, whose founders in 1984 included now-Senator Mitt Romney, describes itself as one of the world’s leading private multi-asset alternative investment firms, with around 150bn US dollars of assets under its management.

LV= says Bain would own the business but not run it and would invest more in the organisation’s independent future.

 

What is private equity and why is it controversial?

A private equity fund consists of individuals and funds that invest directly in private companies, or buy out public companies.

The pandemic has seen American private equity firms target a host of UK businesses, including Morrisons, G4S, John Laing, Meggitt and Ultra Electronics.

Locally, defence giant Cobham was taken over by US private equity before the pandemic, as was retirement housing developer McCarthy & Stone last year.

Critics say such deals often mean restructuring and job losses, with the US funds taking substantial fees.

 

What jobs are at stake?

LV= has 1,300 staff, of whom around 700 are in County Gates, where they share buildings with their former colleagues in the general insurance business.

The rest of the workforce are mainly in Hitchen and Exeter, and LV= says Bain Capital has offered guarantees that all three sites would stay.

 

Who is for and against the sale?

Former deputy prime minister Lord Heseltine has described Bain Capital’s offer of £100 to members as “derisory”, while former Labour leader Ed Miliband said he was “deeply concerned”.

The Financial Conduct Authority has not objected to the deal. But the All-Party Parliamentary Group for Mutuals has said it is difficult for members to assess the proposal, while its chair, Labour’s Gareth Thomas, has called the offer "paltry" and the group has criticised LV= for not being sufficiently open with members while a sale was considered.

LV=’s staff consultative committee has come out in favour of the proposal.

 

Who else might have bought LV=?

LV= did not originally discuss who else expressed interest – but after it recommended the sale, the rival mutual Royal London came forward to say it had offered more.

While Royal London’s headline bid was £10million higher, LV= says the net figure would have been worth “tens of millions of pounds” less – and that Bain Capital was the only organisation that offered an independent future for LV=.

Bain’s pledge includes £160m to improve IT and launch new products, settling debts and tackling the staff pension deficit.

 

What’s on offer to members?

If the sale to Bain Capital goes ahead, LV= members have been offered a £100 payment each.

Bain says this is the minimum, and that with-profit members could get up to £630 through enhancements to their policies.

The basic £100 will sound like a small figure to those who remember big organisations like the Halifax being demutualised in the 1990s. Its members were given at least 200 shares worth £1,469.

But LV= points out that it is a much smaller business than the likes of Halifax, and that 20 per cent of the sale proceeds would be going to members.

 

What’s in it for the bosses?

Much of the criticism of the deal has been directed at Mr Hartigan and LV=’s chairman, Alan Cook, who was managing director of the Post Office when 200 sub-postmasters were wrongly prosecuted for theft. It has been argued that they would profit from being kept on under Bain Capital.

Mr Hartigan does not have a contract with Bain and says it would be “inappropriate” to have one before the key vote. Mr Cook was expected to stay on for another two years, but in recent days it has been reported that he cold be replaced.

 

What happens if members reject the sale?

If members go against the recommendations, Mark Hartigan says the company would have to consider again whether to close to new business or seek new investment.

But he insists he cannot imagine anyone else coming up with “anything like a deal as good as we have on the table”.