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LV/Bain: life insurer’s sale to private equity is a demutual disagreement


An acrimonious fight for 178-year-old insurance company LV is at odds with the communitarian ethos of the UK’s legacy mutual sector. As members vote on a £530m sale to US private equity group Bain Capital, jilted rival Royal London aims to disrupt the deal.

Royal London is, like LV, a mutual notionally run for the benefit of members rather than shareholders. It positions itself as the antithesis of predatory private equity.

It is not quite the white knight it sees itself as. Bain’s offer does mean demutualisation. But LV claims that under Royal London’s previous offer, LV members had no guarantee of membership rights.

The problem for LV members is valuing mutuality, in which businesses are theoretically owned by their customers. Those who support the ethos may back Royal London even if their own membership rights disappear. Others may happily take a payout from Bain, along with its promise to preserve LV’s “rich heritage”.

Bain’s £530m offer is equal to 0.9 times LV Solvency II Own Funds, a measure of book value, as of last September. This is higher than the 0.85 multiple in the acquisition of Abbey Life by Phoenix Group five years ago. However Abbey Life was closed to new business. LV, which remains open, deserves a higher multiple.

Why is a sale necessary? LV, known as Liverpool Victoria before it rebranded with a silly acronym, claims the business cannot grow without one. With £350m in debt, its options to raise capital are limited — though the recent £1bn sale of its general insurance business will reduce this liability. The broader problem is that its with-profits products, whose smoothed returns require trust from consumers, have fallen from favour.

LV stands to become the first sizeable demutualisation in UK financial services in over a decade. Politicians already leery of PE bids for other UK businesses, including Wm Morrison, fret that the sale will reduce diversity among UK financial service providers. Bain’s offer is fair. But it is losing the PR war increasingly central to contentious UK takeovers.

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