The directors of Liverpool Victoria will have themselves to blame if members reject a takeover offer from the American buyout firm Bain Capital. Right from the start, the board has failed to construct a cogent argument to convince members to ditch nearly two centuries of mutual ownership.
Since the deal was unveiled in December, directors have pleaded poverty. The business needs millions in new investment, they argued, and without Bain they would have to find the cash elsewhere, reducing returns for members. However, when it came to spelling out exactly how much extra money was required, the mutual has been silent. The board couldn’t even say how much its members would receive. LV= has, belatedly, shed a little light on the £530 million proposal. Yet the offer documents raise so many questions that it’s hard to see members rushing to approve this bid.
Yesterday the mutual said its members would pocket £100 each. The sum is a pittance compared with demutualisations of the past. Scottish Widows paid its members an average of £6,000 when it was subsumed by Lloyds in 2000. As the Association of Financial Mutuals put it, members are being asked to relinquish control for “less than the cost of good meal out”.
They may not even get that much. Under its present rules, LV= would have to achieve a turnout of at least 50 per cent in a poll of its members before it’s allowed to demutualise. It’s a very high bar that directors are asking members to strike out. If they don’t agree to this change, but approve the takeover, the payment falls to just £60.
So of the £530 million purchase price, Bain will pay a maximum of £111 million to members upfront. It will spend a further £101 million to pay for a 0.1 per cent annual uplift for holders of with-profit policies. What of the remaining £318 million? Boss Mark Hartigan insists the cash will stay with the with-profit division scheme, which will be closed to new business, and used to defray future liabilities. This includes a “significant” sum for its final-salary pension scheme. When disclosures are this vague, how are members supposed to make an informed choice?
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Hartigan may be right that the mutual needs an injection of capital after years of underinvestment and that members/customers would earn higher returns under a new owner. But he’s asking LV= members to take a lot on faith.
Members should consider who benefits. Hartigan wants to stay on after the takeover and could earn multiples of his present £1.2 million-a-year deal if LV= prospers. They should also question Bain’s track record. The private equity firm boasts of its “extensive” experience in taking mutuals into private ownership. Yet much of its purported expertise comes from an insurance investment house it acquired three years ago. It has shallow roots in this sector.
In a letter to members, Bain wrote of its “long-term” plans for LV=. This claim should be taken with a sack of salt. In early 2015, it bought the brickmaker Ibstock and then listed it on the stock market eight months later. If the price was right, it would flip LV= just as quickly.
Mail’s mauling
Many public figures know how it feels to be put through the Daily Mail mincer. A politician or business leader can spend months crafting a new policy or strategic switch, only to see it torn asunder on the Mail’s front page.
Lord Rothermere will sympathise. Yesterday he finalised his scheme to take the Daily Mail and General Trust private, but within hours it was shredded by one of his largest investors. Majedie Asset Management, which owns a 4.6 per cent stake, said Rothermere’s £850 million offer “substantially” undervalued the publisher. It urged fellow investors to reject the bid.
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Majedie has a point. Yes, DMGT has delivered for independent investors over recent years, notably the £1 billion profit on online car retailer Cazoo. Rothermere has dismantled the family business and is handing out more than £2 billion in cash and stock. But, as Majedie rightly argues, there’s an “inherent asymmetry of information” between Rothermere and other investors, which makes it hard to assess the value of the group. The rump businesses earned an operating profit of £42 million last year. The 20 times multiple doesn’t look overly generous for a company that’s tilted towards consumer media, but has exposure to the recovering events industry and property data.
Rothermere has a strong position; he owns 36 per cent of the economic interest in DMGT and 100 per cent of the voting stock. But Majedie and other investors have leverage. They don’t have to tender their shares unless 90 per cent of independent shareholders approve the takeover. The Mail’s proprietor has wriggle room to lower the threshold, but will need to dig deeper to get this deal done.
Bank’s Next move
If Andrew Bailey had been looking to Next for fresh insights on consumer spending, his hopes will have been dashed. The retailer merely underlined the quandary the Bank of England faces as it weighs whether to raise rates today.
A 17 per cent rise in third-quarter sales is testimony to the resilience of the UK consumer. However, Next warned that times are going to get much tougher. Pent-up demand is waning and surging inflation likely to reduce consumption. The retailer struggles to hire staff while supply chains have become so strained that it is bringing in more clothes by air. Not what they want to hear in Glasgow — or Threadneedle Street.
