Following reports, LV has confirmed an email was received from Royal London last week proposing the “dismantling” of its business in a three-way transaction with its current private equity buyer, Bain Capital.
But Royal London has disputed this and said it merely wants to take part in a "conversation" before LV members voted on whether to accept the Bain deal.
Next month LV will hold a member vote on whether Bain should buy the mutual insurer.
Reports suggested the deal would see Royal London buy the bulk of LV’s existing policies, while Bain Capital would buy the LV brand in an effort to attract new customers.
Today (16 November), Alan Cook, LV’s chairman, said Royal London’s latest proposal underlined its “lack of interest in supporting LV's new business franchise”, as well as “its intentions to break-up LV”.
He continued: "We are also surprised and disappointed by the timing of Royal London's intervention, which comes more than a year after we terminated our confidential discussions and is seeking to destabilise the conclusions of our comprehensive strategic review, in close proximity to what is a very important vote for our members.”
Cook said LV is now attempting to "clear up the fog” for its 1.2m members, in an attempt to “remove all the uncertainty and confusion” ahead of the member vote on December 10.
One detail LV highlighted in its statement today was that, contrary to reports, Royal London's initial proposal to buy the firm “would not have resulted in LV members having any membership rights in the enlarged mutual group”.
The insurer highlighted Royal London’s previous acquisitions of mutuals, including Royal Liver, Co-operative and Police Mutual, which saw no membership rights offered to the members of these mutuals.
“To describe Royal London's proposal as offering 'a mutual alternative, more favourable to LV members', is grossly misleading,” LV concluded.
Due diligence
Royal London’s initial bid for LV was rejected late last year, after the insurer reached the last two in LV’s auction process, losing to Bain Capital’s proposal - which David Barral, LV’s senior independent director, said today was “far superior to any proposal received from other third parties, including Royal London”.
LV has outlined a number of reasons why it decided to go with Bain Capital over Royal London. One was the latter’s refusal to pay for further due diligence.
“The board of LV was surprised and disappointed that Royal London declined LV's request to progress its due diligence investigations during the final stages of the process,” LV said today.
“In contrast to the position of other bidders in the process and general market practice, Royal London insisted that it did not wish to incur the additional marginal cost ahead of being granted exclusivity.
“This was not a request that LV's board could accept as it would have significantly weakened its negotiation position with Royal London and would have involved terminating discussions with other parties who ultimately put forward a better and more certain transaction to the benefit of LV and its members.”
As well as material due diligence outstanding, LV also highlighted how Royal London’s initial proposal “would have resulted in the rationalisation of our operations and significant headcount reductions”.
It added that no commitment was offered by Royal London with respect to its office locations in Exeter and Hitchin.
And while Royal London offered a higher headline value - £540m compared to Bain Capital’s £530m - LV said Royal London was proposing to leave material liabilities in respect of the non-profit business with LV's with-profit fund.
“Additionally, Royal London's proposal included higher and less certain administration and investment management costs,” the insurer said.
In a statement Royal London sent to FTAdviser yesterday, it confirmed it had contacted LV and asked the mutual to consider if its current proposals could be "enhanced".
It said: "We are ready to explore any option for the business that delivers a better member outcome, and we believe there are significant benefits for LV members in being part of another mutual. This could involve the business as a whole or just the with-profit members.
"The board of LV has not taken up our offer to discuss other possible options but our door is open and we remain ready to engage.”
In response Royal London said it has "long wished" to find a way to combine the UK’s two biggest insurance mutuals and that it does not want to break up LV. It also confirmed that staying mutual wasan option if LV made this a priority and engaged in talks.
Barry O’Dwyer, chief executive of Royal London, said: “LV members have an important choice to make. I call on the LV board to engage with us to explore how LV customers can continue to have their life savings protected and invested by a mutual.”
ruby.hinchliffe@ft.com
