LV boss defends selling mutual to private equity

Backlash: Mark Hartigan is defiant that he has secured the best deal

Mark Hartigan is jabbing his finger emphatically at a document in front of him. The LV boss has just been hit by a fierce backlash over plans to sell the 178-year-old mutual to US private equity giant Bain – and he is quite clearly exasperated. 

The information pack on his desk explains that customers will receive £100 each if they agree to the deal, plus an extra 0.1 per cent return for every year they’ve held a with-profits policy since 1996.

But the payouts offered to customers last week have been described as ‘paltry’ by critics. Labour MP Gareth Thomas even said it was a ‘bad deal’ that handed a member-focused business to a ‘private equity shark’. Hartigan can barely contain his frustration at the days of criticism he’s received over a sale offer presented to 1.2million members after months of hard work. ‘There’s a lot of emotion and sweat and tears in that pack – my goodness we’ve worked so hard to get it clear and right,’ he says, with more than a hint of weariness in his voice.

‘[Critics] might think it’s a paltry sum, which I respect, but it’s the very best that we could achieve, the very best the board could achieve for their members.’ 

The central complaint from members is that £100 is a poor reward for a £530million deal that spells the end of LV as a mutual owned by its customers. 

They point out that the offer pales in comparison to the bumper handouts from other companies that have demutualised. For example, Halifax customers received 200 shares in 1996, worth £1,469 at the time, when the former building society became a bank. Hartigan insists the offer from Bain ‘was the most anyone was going to offer’, beating 11 other bidders. 

‘The absolute overriding priority was which of all the 12 [bidders] is going to give us most money, and actually it was a good price in relation to the size of business and similar deals in the market,’ he says. 

‘We’ve taken 40 per cent [of the sale price], that’s £212million, and we’re going to distribute that directly to members.’ 

Hartigan, a former soldier, is dressed in a crisp suit befitting a man on a tricky mission. The 58-year-old has agreed to speak to The Mail on Sunday in an attempt to explain why selling LV to a new owner is vital. His signet ring glistens as he gestures at the member pack and insists LV simply does not have enough money to invest in the business to remain competitive. 

One of its biggest costs is its with-profits fund, where members pool their money to be invested in stocks and bonds in return for regular payouts. He says LV has to manage these payments by ensuring there’s enough money for day-to-day operations. 

In addition, he says LV is saddled with £350million of debt – even after selling its general insurance arm for £1billion in 2019. ‘We can’t raise any more debt because we’re maxed out,’ he explains. ‘If we were to stay as is, to get the investment we need, I would need to take money from the with-profits pot.’ 

He explains that would mean reducing payouts to savers, which he clearly doesn’t want to do. 

The next option was to ‘close to new business, sack everyone and close all the sites down’, he says. ‘All the money in the with-profits fund would be secure – but we wouldn’t be adding to it either.’ 

The third option was selling LV, using the proceeds to boost the with-profits fund. ‘Some of the money [from Bain] will be given out to members, but the rest of it stays in the fund,’ Hartigan says. Even if members accept Hartigan’s logic about a sale being the best course of action, why couldn’t he have found another mutual to buy LV? After all, the prized mutual status is what attracted many customers in the first place. 

Hartigan says the problem with selling to Bain’s rival bidder Royal London, for example, was that mutuals cannot raise money from external investors. In other words, he believes a fellow mutual wouldn’t be able to fix LV’s financial problems without also changing the insurer’s ownership model. 

‘We understood that all roads lead to demutualisation – even going to another mutual,’ Hartigan says. ‘It would have led to the same thing.’ Private equity firms such as Bain are known for loading companies with debt and cutting costs to the bone to ratchet up profits. Couldn’t Hartigan have found a less controversial owner? He says Bain has assured him it won’t get involved in day-to-day matters. ‘They’re not going to run the business,’ he says. ‘What Bain have done is to say, ‘We’ll back you guys and we’re going to give you money in the hope that in the long-term you’re going to grow this business’.’ Bain will also reduce LV’s debt pile, he says. 

Another question from members is whether Hartigan will lead LV after the sale. After all, he’s on an extended contract that was only meant to last a year and there has been speculation he’ll receive a huge bonus for seeing the deal through, as well as a hike to his £1.2million pay packet. ‘I hope to stay on, I’m emotionally attached to the outcome,’ Hartigan says. ‘Today, I can tell you, I have no contract in my hand. And it would be inappropriate of me to have one before the vote.’ 

But he dismisses the question about his pay, saying: ‘There is no deal-related remuneration going to me or the management team or any member of the board.’ 

LV is also holding a vote on another crucial issue: a move to ditch the requirement for 50 per cent of members to vote on demutualising the business. 

If a majority support the deal but not the move to ditch the 50 per cent voting requirement, the £100 payout would be slashed to £60. This is because extra costs will be involved in restructuring the deal, Hartigan explains. To many it seems like a sneaky way of pushing through the Bain sale by putting members between a rock and a hard place. 

Hartigan sees it differently: ‘In order to achieve the best outcome, to get this extra money to get into that fund, we have to find a mechanism to allow for it.’ 

Hartigan is used to the heat of battle. As a soldier, he commanded a regiment before becoming a colonel and served in Ulster in the early 1980s as well as Kosovo, Bosnia, and Iraq, and taught at Sandhurst. 

He switched to the insurance industry in the early 2000s, joining Nexus Insurance as a broker in the Middle East. He was plucked by Swiss insurer Zurich to lead its Middle East and Africa operations and later appointed its head of operations for Europe. 

Unusually for a military man, Hartigan isn’t afraid of revealing his emotions on the LV deal that could define his career in the City. ‘All of us have felt the weight of responsibility,’ he says. ‘That’s why I stayed on to finish the job. This is a great British brand that will continue and survive as a consequence of this transaction.’

How members will decide LV fate

LV members can vote for or against the sale of the insurer to private equity firm Bain Capital for £530million. 

They should have received a Member Vote Pack in the post by November 18. The deal means LV will lose its status as a mutual, meaning it will no longer be owned by its policyholders. 

In return, customers will receive £100. Of these, 297,000 are with-profits policyholders. They will receive an increase to their exit bonus worth 0.1 per cent for each year they have held the policy since 1996. The total payout amounts to £212million – 40 per cent of the sale price. The first vote will be on approving the acquisition by Bain. It will require 75 per cent to support the deal to go ahead. 

The second vote will be on dropping the need for 50 per cent of members to vote, because LV is not expecting many members to take part. If members vote for the sale but against this second motion, they will receive just £60. Votes can be cast via post by Wednesday, December 8 online or in person at the Special General Meeting on Friday, 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. 

This post first appeared on Dailymail.co.uk