Members of LV= have today voted down controversial proposals to sell the insurance mutual to US private equity firm Bain Capital for £530m – a move which would have led to its demutualisation.
The deal had met opposition in the press, from some of LV=’s own members, and from politicians of all parties – notably the All Party Parliamentary Group (APPG) on Mutuals, which had conducted a long investigation into the planned sale.
Concerns had been raised over the size of payout to the mutual’s members and on the impact the sale might have on the diversity of ownership in the UK financial services industry.
The vote saw 69% of a possible 1.1 million voting members back the sale – short of the 75% threshold needed.
The news was welcomed by the co-op movement, with the Co-op Party tweeting: “This is an incredible win for the mutual movement, and shows what members can do when we work together.”
And Labour/Co-op MP Gareth Thomas, chair of the APPG who has played a leading role in opposing the deal, tweeted: “Congratulations to the group of members of LV= who have asked tough questions about the proposed demutualisation of the business they own. Bain were always the wrong choice by LV’s bosses.”
He called on LV= chair Alan Cook and CEO Mark Hartigan to resign and make way for “those committed to a mutual future”.
Mr Thomas added: “There are serious questions for government and regulators to consider now. There needs to be an overhaul of the legislation governing mutuals, in particular, around demutualisation.
“Government must enable mutuals to compete on equal terms with companies and regulators need to recognise that they have a particular responsibility to stand up for the ownership rights of members of mutuals.”
Earlier this week, more than 100 MPs and peers from across the political spectrum signed a letter to the Treasury calling for a review of the law that would allow the sector “to compete on equal terms as companies in capital markets”.
Mr Thomas said the letter calls for “removing the incentives for unnecessary demutualisations; strengthening the rights of member owners during demutualisation; allowing mutuals to compete on equal terms as companies in capital markets; establishing a duty on regulators to protect the interests of owners of mutuals; reforming the independent expert rules.”
Thinktank Mutuo, which compiled the APPG’s report on the deal, tweeted: “This is a positive vote for mutuality and the interests of customer-members everywhere.”
Martin Shaw, CEO of the Association of Financial Mutuals, said: “We expect that the board will have heard the strong dissent from many members, and the equally strong concern expressed by politicians, and so must determine how the best interests of members are secured for the future. We think this will be by remaining in mutual hands, either as an independent business with a new and more visionary board, or by a merger with another mutual.”
He added that LV=’s problems do not affect other mutual insurers, “who in fact increased market share in 2020, and who gained wide-ranging credit for their support to members during the pandemic”.
LV= chairman Alan Cook said he will step down once the mutual has decided its future courts.
“We want to reassure policyholders that this outcome will mean no changes to their policies or our ongoing commitment to the highest standards of service from LV=,” he said. “I will continue to lead the process to find a way forward that will enable us to provide the right financial outcome for all our members while respecting their different wishes.”
LV= said chief executive Mark Hartigan will continue in his role, and the business will “swiftly reassess its strategic options and explore alternative ways to provide the best long-term outcome for members, the business, employees and its wider communities”.
The LV= board said it had “listened to member concerns about the loss of mutuality and so will in particular explore whether mutuality can be retained either on a standalone basis without undue risk to members, or through a merger with a larger mutual organisation”.
The insurer says it faces challenges to its capital structure in a competitive market, and has struggled to raise funds because of its mutual status.
One possible solution comes in the form of a merger proposal from rival mutual Royal London, although LV= warns this is “at an early stage and is subject to discussion, due diligence and detailed negotiation of financial and other terms”.
It added: “There can be no certainty that a transaction will be agreed.”
In a statement, Royal London said its bid would offer LV= members “the opportunity to have their life savings protected and invested by a mutual.
“We envisage that the terms of the merger would offer LV= members the option to become members of Royal London”.
Bain Capital said it “remains crucial” that members are “looked after and protected”.
“We have always wanted LV= to flourish and become a leading company in the sector, that offers more consumer choice and creates more jobs,” a spokesperson added.