Royal London lines up full-blown LV merger
Financial Mail On Sunday
By Emma Dunkley and Neil Craven
ROYAL LONDON plans to propose a full-blown merger with rival insurer LV, The Mail on Sunday can reveal. Barry O’Dwyer, chief executive of Royal London, is understood to be preparing to present a merger deal to LV’s board if its members vote against a £530million sale to private equity giant Bain Capital on December 10. The takeover by the US firm has been hit by a backlash after LV members were offered £100 in return for losing their 178-year status as a mutual. Such a change would see the company managed for a profit rather than for the benefit of customers. The Mail on Sunday understands that the new plan for a merger would allow LV members to keep their mutual status as part of Royal London. If the two mutuals were to combine, Royal London could then look to sell the historic LV brand. The brand is already licensed to German financial firm Allianz, which bought LV’s general insurance business for £1billion last year. One analyst said it would be an ‘obvious’ move to sell the whole brand to Allianz, which would then be able to market LV life insurance as well as general insurance policies to new customers. LV was founded in 1843 to cover funeral expenses and was previously known as the Liverpool Victoria Friendly Society. It quietly changed its status from a friendly society to a company limited by guarantee in 2019 – although staying a mutual – so that it could be sold to a private firm. A proposal to merge the businesses would require a vote by both LV’s 1.2 million members and Royal London’s 1.85million members. A process to vote and merge the two could take at least 18 months. The option of a merger is said to have been discussed previously when Royal London expressed an interest in acquiring LV’s general insurance arm. But talks floundered and the unit was sold to Germany’s Allianz in 2019. Industry insiders warned that if the existing deal with Bain is scrapped, LV could soon run out of options. If Bain’s offer is rejected, LV’s other options are to carry on in its current state or close the business, although it has already said these are not attractive solutions. An insurance expert said: ‘If [LV] stayed as a friendly society, I think they’d have been worried that there was only one game in town, that they could only merge with Royal London. So, they were probably thinking that in order to introduce some competitive tension and get the best value for members, we’re going to have to construct something [a sale process] where other people will be able to bid as well.’ The latest development could give LV members a viable alternative to selling to the US private equity firm. Politicians have blasted the sale, calling the £100 offered to members ‘paltry’. LV’s 297,000 with-profits policyholders would receive enhancements worth on average close to £400. Lord Heseltine, the former Tory Deputy Prime Minister, has urged members to reject Bain’s offer. However, some attempts to merge mutuals in the past have faced a backlash. The merger of Royal Insurance and Sun Alliance in 1996 led to thousands of job losses. Royal London has acquired a string of other friendly societies and mutuals, including Scottish Life in 2001, Scottish Provident in 2008, and Royal Liver in 2011. LV claims it needs to sell to have enough cash to remain competitive. Otherwise, it might need to use money that would normally go to its with-profits policyholders. The Mail on Sunday revealed last week that O’Dwyer had privately emailed LV chief executive Mark Hartigan, asking for a three-way conversation with Bain to discuss buying part of the business if the vote goes against the deal. It is understood that Hartigan sent only a brief response, acknowledging receipt of the email – and no three-way discussions have been held due to an exclusivity agreement with Bain. Hartigan hit out publicly last week following the email, accusing Royal London of lobbing a ‘grenade’ into the deal process. If the Bain deal falls through, members could be hit with the extra costs involved in a new deal. The Mail on Sunday can reveal that the process has so far cost more than £30million, which includes fees paid to lawyers, bankers and advisers. Royal London made it to the final stage of the LV sale process with a £540million offer but was beaten by Bain’s lower £530million bid. LV said Bain’s offer was more attractive because it was prepared to acquire the entire business, and Royal London had ‘higher and less certain’ administration costs. A spokesman said: ‘The board concluded that Bain Capital offered greater value to LV members when compared on a like-for-like basis and would result in greater and more certain payouts to members, on a more accelerated basis.’ Royal London declined to comment.