Bain Thwarted in Yearlong Effort to Buy U.K. Insurer LV=

(Bloomberg) -- Royal London made a fresh proposal to merge with rival insurance mutual LV=, minutes after an offer by Bain Capital to buy the struggling firm failed to secure the support of members.

The proposal is a “substantively different structure” to the offer Royal London made last year when LV= began searching for a cash injection, LV= said in response Friday. “The board will consider this proposal seriously,” it added.

A tie-up with Royal London would preserve LV=’s mutual status and could placate U.K. lawmakers who spoke out against a sale to private equity giant Bain.

LV=’s members did not give enough support for Bain’s 530 million-pound ($701 million) proposal to pass, after about a year of discussions, according to a statement earlier Friday. Only 15% of its 1.2 million members cast a vote, and 69% were in favor -- falling short of the 75% needed.

“The board is disappointed not to have achieved the outcome that we believed was in the best interests of LV= and its members,” LV= Chairman Alan Cook said in a statement. “The board remains committed to finding a solution to the challenges presented by a declining with-profits membership base,” Cook said, adding he would step down once a solution was found.

LV= received 12 bids for its business in 2020, with firms expressing an interest alongside Bain and Royal London including Phoenix Group Holdings and private equity firm Cinven Ltd., Bloomberg News has reported. 

Mutual Status

Some U.K. politicians and media have campaigned for LV= to preserve its status as a mutual, or member-owned business, though the model has fallen out of favor as firms seek capital through the public markets or private equity. 

In parliament, Gareth Thomas was among lawmakers to speak out against the first major demutualization since the financial crisis. Thomas went on to write a letter signed by more than 100 lawmakers asking Chancellor of the Exchequer Rishi Sunak for a review to strengthen mutuals’ ability to compete on equal terms in capital markets with other financial firms. The Daily Mail newspaper, which has campaigned against private equity takeovers, recently urged readers to write to LV=’s chairman and reject the Bain deal. 

“The last thing anyone wanted was to leave membership of LV= rudderless so it is a real positive Royal London followed through after their initial bid,” said Martin Shaw, head of the Association of Financial Mutuals. Members of both LV= and Royal London would need to vote in support of a merger between the two, Shaw said.

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