US private equity shark Bain accused of ‘smoke and mirrors’ over proposed LV buyout
Bain Capital has been accused of ‘smoke and mirrors’ tactics in its proposed buyout of LV, as it revealed it would not be investing any of its own money in the insurer’s future.
The US private equity firm was chosen as the favoured bidder last year by LV’s bosses, who claimed that the historic mutual desperately needed cash from a third party to fund its expansion and invest in technology.
LV’s chairman Alan Cook said selling the business – which would involve giving up its cherished mutual status, meaning it is owned by its customers – was the only way to secure this investment and LV’s future.
US private equity firm Bain was chosen as the favoured bidder last year by LV’s bosses, who claimed that the historic mutual desperately needed cash from a third party
But as Bain broke cover yesterday to tout the deal – in the face of heavy criticism from MPs and campaigners – it admitted that none of its own money would be pumped into investing in LV.
Instead, it will be using £160million of the insurer’s own cash flow to modernise LV’s tech.
Peter Hunt, of consulting firm Mutuo, said: ‘It’s all smoke and mirrors. The story all the way through this deal is that it’s members and customers who are actually stumping up the cash.’
Bain is offering to pay £530million for LV, formerly Liverpool Victoria – but none of this will actually go towards investment in the business.
A chunk of it will go towards paying off LV’s 1.2m members, giving them £100 each to give up their ownership of the insurer.
Members who own more generous with-profits policies will also get a small uplift to their final payout, worth 0.1 per cent of the value of the policy for every year they have held it.
MPs have labelled this a ‘paltry’ sum, while members have blasted the payout as a ‘bribe’. Another £264million will go towards future pension contributions for LV employees.
At the moment, the pension funds are well capitalised and were happily receiving small annual contributions from the business.
The remaining £54million will be used to cover the costs of the Bain deal, including the multi-million-pound bills racked up on advisers and lawyers.
A spokesman for LV said Bain’s buyout of LV would still be better for members than letting the business carry on as usual, because it would remove risks for them.
Without Bain, LV would have to keep paying in to its pension funds, leaving members’ money at risk if the business underperformed and found itself short of cash.
And without Bain, members’ money could also be at risk if LV’s investment in technology turned sour and the business suffered.
But several members who have contacted the Mail claimed they would be prepared to take that risk, and would prefer to see LV stay as a mutual run for its members rather than a profit-hungry private equity firm.
Members have until December 8 to vote on the deal by post or online, or they can cast their ballot during a webinar on December 10.
Make your voice heard on LV
We are encouraging LV members, customers, or others, who would like to see it retain its mutual status, rather than be bought out by private equity, to write to it.
You could use the wording from the letter printed in the Daily Mail newspaper’s City pages (pictured here).
We have included the words for you to copy and paste into a letter below.
Send it to Alan Cook, Chairman of LV=, Liverpool Victoria, County Gates, Bournemouth, BH1 2NF
Dear Alan Cook,
I, the undersigned, urge you to reconsider your decision to sell LV= to Bain Capital and instead maintain its mutual status.