Royal London forms full-scale LV merger: rival bidder’s new twist allows insurer to maintain status quo – but can sell the historic brand later
- Bain Capital’s takeover has been hit by a setback from LV members
- The new plan allows LV members to maintain their mutual status
- If the two mutuals are combined, the Royal London LV brand can be sold
Royal London plans to propose a full-scale merger with rival insurer LV, The Mail on Sunday can reveal.
Royal London chief executive Barry O’Dwyer is reportedly preparing to present a merger deal to LV’s board, with its members voting for a £ 530 million sale to private equity giant Bain Capital on December 10.
The US firm’s takeover is set to fall after LV members paid £ 100 in return for losing their 178-year status.
A sure sign: Royal London boss Barry O’Dwyer is understood to be preparing to present a merger deal with LV
Such a change would make the company perform better for the customer than for the profit.
Mail on Sunday understands that the merger’s new plan will allow LV members to keep their mutual status as part of Royal London.
Combining the two mutuals, Royal London could look to sell the historic LV brand later.
The brand is already licensed to German financial giant Allianz, which bought LV’s general insurance business for £ 1 billion last year.
One analyst said it was a “clear” move to sell the entire brand to Alliance, which would then be able to sell LV life insurance and general insurance policies to new customers.
LV was founded in 1843 to cover the cost of funerals and was formerly known as the Liverpool Victoria Friendly Society.
It quietly shifted its status from friendly society to guaranteed limited company in 2019 – albeit mutually exclusive – so that it could be sold to a private firm.
The merger proposal would require LV’s 1.2 million members and Royal London’s 1.85 million members.
The process can take at least 18 months to vote and merge the two. The merger option is said to have been discussed previously when Royal London expressed interest in acquiring LV’s general insurance arm. But negotiations failed, and the unit was sold to Allianz in Germany in 2019.
Industry insiders have warned that LV could soon run out of options if it cancels its existing deal with Bain. If Bain’s offer is rejected, LV’s other options are to continue in its current position or close the business, although it has already stated that these are not attractive solutions.
Insurance experts said: ‘If [LV] As a friendly society, there is only one game in town, and I think they were worried that they could only merge with Royal London. So, they were probably thinking that we need to build something, to introduce some competitive pressure and get the best value for the members. [a sale process] Other people will be able to bid there. ‘
Recent developments may offer LV members a viable alternative to selling to a US private equity firm. Politicians have blasted sales, calling the £ 100 offered to members as ‘trivial’. Policyholders with LV’s 297,000 profits receive an average increase of £ 400.
Lord Heseltine, the former Tory deputy prime minister, has urged members to reject Bain’s proposal.
However, some attempts to merge in the past have met with setbacks. The merger of Royal Insurance and Sun Alliance in 1996 resulted in thousands of job losses. Royal London has secured a string of other friendly societies and interactions, including Scottish Life in 2001, Scottish Provident in 2008 and Royal Liver in 2011.
LV says it must be sold to have enough money to remain competitive. If not, it may need to use the money that usually goes to the policyholder with its profits.
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 the business side if the vote against the deal.
It is understood Hartigan only sent a brief response acknowledging the email’s receipt – and no three-way talks have been held due to a special agreement with Bain. Hartigan hit publicly after an email last week, alleging that Royal London lobbied for a ‘grenade’ in the deal process.
If the Bain contract fails, members may be hit with additional costs involved in the new contract. The Mail on Sunday can reveal that the process has so far cost more than £ 30 million, which includes fees paid to lawyers, bankers and consultants.
Royal London reached the end of the LV sales process with a £ 540 million offer but was defeated by Bain’s low £ 530 million bid. LV Bain’s offer is attractive because it is ready to take over the entire business and Royal London has ‘high and low fixed’ administrative costs.
A spokesman said: ‘The board has concluded that Bain Capital offers LV members greater value when compared to those on an equal basis, and offers more and more specific payments to members on a more accelerated basis.’ Royal London declined to comment.