After 178 years of history, mutual insurer LV= faces a crunch moment this week, when its members decide whether to sell to US private equity firm Bain Capital.
In a deal worth £530m that was first mooted a year ago, the battle for control of the firm once known as Liverpool Victoria will come to a head on Friday when its 1.1 million members cast their votes in a poll that could lead to the demutualisation of one of Britain’s oldest and largest customer-owned businesses.
While the board of LV= insists that selling will protect the firm’s future – and is in the best interest of members – the tussle has caused political waves and caught the mood of wider changes in British society.
By the end of this week, Britain may have one less mutual firm, a change that will highlight the trend towards an increasingly one-dimensional economy, where ownership of companies and wealth is concentrated in ever fewer hands.
It’s a shift summed up by the tale of LV=. It was set up during the reign of Queen Victoria to help Liverpool’s working class pay for costly funerals, in a rejection of the economic status quo of the time, according to Joe Fortune, general secretary of the Co-operative party.
“Given that trajectory, a sale to Bain Capital would be an incredibly sad moment for all those interested in the culture of the mutual movement,” he said. “We know the spread of ownership creates a more equal economy.
“It’s important to have mutuals owned by millions of ordinary members who have a say over the decisions that business makes – decisions that take a longer-term look, aren’t motivated by short-term profit and have members’ interests at heart.”
In recent decades the mutual sector has been whittled down, notably in the 1990s as building societies scrapped deeper links with their customers to embark on the pursuit of profit. This culminated in the 2008 financial crisis, when debt-laded ex-mutuals such as HBOS and Northern Rock collapsed spectacularly.
Despite relatively broad cross-party support for alternative models of company ownership, few mutual giants remain: supermarkets-to-funeral service Co-Op Group and Nationwide building society are among the biggest.
It’s fair to say that LV=’s members haven’t always been kept as well-informed about the proposed sale to Bain Capital as its mutual principles might suggest. City watchdog the Financial Conduct Authority has challenged the company about its engagement with its members.
Prompted by the political and media noise around the deal, the board has made greater efforts to restate the benefits of the transaction and justify its decision to reject approaches by Royal London, a rival mutual insurer.
The ballot will require three-quarters of voting members to back the Bain plan, with each of those 1.1 million members getting £100 in exchange. A smaller group of about 271,000 “with-profits” members would also be in line for enhancements and bonuses from a total pot of £533m – about £2,000 each, on top of the £100. The results will be announced on Friday afternoon.
In this saga over its control, LV= has considered 12 bids since a strategic review last year concluded that the business lacked scale, had an insufficiently strong capital structure, and was badly in need of investment. The board made the case that carrying on without change might not work well for the firm.
LV= was faced with putting member payouts at risk by investing its own capital, or selling to a bidder with deep pockets who could take those steps instead. The board said the choice of Bain Capital had not been made lightly, given the firm’s heritage, but it was the “right choice because it saves the future of LV=”.
That’s as may be, but demutualisation means that after almost two centuries of history, a vital characteristic of the firm will vanish.