Pensions giant Royal London proposes secret deal that could lead to break-up of insurer LV with spoils shared with private equity firm Bain Capital
- Royal London boss Barry O’Dwyer made the controversial proposal via email
- The existing £530million deal to sell LV to Bain has come under fire
- LV insists Bain’s offer was the most attractive of the 12 proposals it received
Pensions giant Royal London has proposed a secret deal that could lead to the break-up of insurer LV with the spoils shared with private equity firm Bain Capital.
Royal London chief executive Barry O’Dwyer has made the highly controversial proposal to LV chief executive Mark Hartigan in recent days via an explosive email seen by The Mail on Sunday.
The message canvasses support for an ‘enhanced’ deal that would ‘be more attractive’ to the mutual’s membership. The existing £530million deal to sell LV in full to the private equity giant Bain has come under fire over fears that it would spell an end to the insurer’s mutual status and leave members short-changed.
Secret deal: Royal London chief executive Barry O’Dwyer has made the highly controversial proposal to LV chief executive Mark Hartigan in recent days
The Royal London email suggests an ‘early three way discussion between Liverpool Victoria, Bain Capital and Royal London’ if members vote against the Bain takeover on December 10. It claims this would be worthwhile because Royal London and Bain are ‘principally interested in different parts of the Liverpool Victoria business’.
However, Royal London insiders admitted last night that LV members would likely lose their mutual rights under its secret alternative proposal – even though their policies would ultimately still be owned by a mutual.
It is understood that Royal London is interested in buying only LV’s old with-profits policies and other existing business such as annuities.
Bain Capital would take on the LV brand as a separate business aimed at attracting new customers.
LV bosses have insisted both sides are contractually committed to completing the Bain transaction if members approve the crunch vote next month.
The email has emerged after bosses at Royal London, a rival mutual, were last week said to be considering plans to resurrect a previous offer for the business if members rebelled over the private equity deal.
That in turn led to a groundswell of support from critics of the Bain deal, who argued that a sale of LV to another mutual should be put back on the table. But the email proposal seen by The Mail on Sunday puts a new twist on Royal London’s intentions for LV, formerly known as the Liverpool Victoria Friendly Society – a ‘penny policy’ insurance company founded in 1843 to cover the funeral expenses of members.
Royal London boss O’Dwyer raises with Hartigan the ‘risk your members will reject the proposal’.
The message continues: ‘If it becomes clear to you that this is a likely outcome, I would propose an early three way discussion between Liverpool Victoria, Bain Capital and Royal London to consider if the current proposal could be enhanced in order to be more attractive to your members. It strikes me that there may be room for discussion if Bain Capital and Royal London are principally interested in different parts of the Liverpool Victoria business.’
The communication also alludes to a previous approach made by Royal London, discussed with the LV board, in which the pension giant ‘explained our belief that the combination of our two mutuals would represent an excellent choice for your members’.
It asks Hartigan to inform Bain Capital of its approach and to share the contents of the email with chairman Alan Cook and the rest of the company’s board. It is understood LV has not yet responded to the proposal. Lord Heseltine, the former Conservative Deputy Prime Minister, and Ed Miliband, the former Labour leader, have emerged as critics of the agreement with Bain.
There have also been complaints about a £100 payout offered to its 1.2million members and modest enhancements worth £340 for the 297,000 with-profits policyholders, who are the legal owners of the business.
But LV insists Bain’s offer was the most attractive of the 12 proposals it received. Sources said Royal London’s original offer would have led to LV office closures and job losses in Hitchin and Exeter to cut costs.
Royal London has been agitating against the deal, and said in a public statement following publication of the terms with Bain: ‘We think the case for demutualising is very weak if there is an alternative, equivalent option to allow a mutual to retain its status.’ But a source close to the deal said of Royal London’s secret offer last night: ‘This reveals Royal London’s real intentions. This proposal would be like taking a chainsaw to the company and is clear evidence of a proposed carve-up that would be in no one’s interests but their own.’
Another source described Royal London as ‘a wolf in sheep’s clothing’. The source said the deal could be similar to one struck by Royal London in 2011 when it transferred Royal Liver into Royal London, skewing benefits to its own members.
In a rare intervention last night, Bain told the MoS it planned to almost double the number of policyholders and pledged not to increase LV’s £350 million debt pile.
Matt Popoli, head of insurance at Bain Capital, said: ‘This is a growth investment for us. LV is a fantastic brand with a rich heritage which is not reflected by its market position. ‘We see potential to grow LV’s current 1.2 million policyholders to around two million in the long term.
‘We have an ambition to restore LV to its position as a top three life insurance provider across a wide range of products. Our proposal is strengthening LV’s financial position.
‘Not only are we providing access to investment capital for growth, we will not be increasing LV’s debt.’