The long and confusing tussle over the sale of LV=, the mutual known as Liverpool Victoria in its less funky days, is proving a wonderful advertisement for the clinical manner in which the stock market goes about buying and selling companies.
In the stock market arena, you get a clean punch-up, overseen by the Takeover Panel as referee, and run to a strict timetable. Financial claims must be verified, relevant facts must be disclosed to shareholders and bidders and targets are expected to explain themselves promptly.
At LV=, by contrast, the unsatisfactory saga has been running for a year and the proposed £530m sale to Bain Capital has exploded into life a fortnight ahead of the vote by policyholders for several good reasons.
First, and most obviously, because Bain is a private equity firm that looks a very odd fit as would-be owner of a 178-year-old mutual organisation. Second, because the basic £100-a-head bung to policyholders cannot be called compelling. Third, because the board of LV= has done a shockingly poor job of defending its rationale for backing Bain’s proposal.
On that final point, LV=’s directors belatedly tried to rectify matters on Tuesday. They made a few reasonable points too. It was not an out-and-out perverse decision to favour Bain, one can say. Its £530m offer may indeed have been financially superior to Royal London’s headline £540m because the latter planned to leave “material liabilities” with the with-profits fund.
There was also a question of certainty. Royal London, a fellow mutual, didn’t want to spend more of its members’ money pursuing due diligence investigations in order to convert a proposal into a hard offer. So, yes, one can see why LV=, which had already concluded it needed to sell to someone, was worried about execution risk.
And, note, at that stage, Royal London’s proposal would also have seen LV= demutualise. LV= members would not have been offered membership rights and it is possible that, after the numbers had been crunched, policyholders would have got less than £100.
In other words, the caricature that Royal London was a purely virtuous white knight is not quite accurate. The counter-bidder should have gone the distance; and, if it was prepared to grant membership rights, which it now says it would be happy to discuss, it should have spoken up. Royal London has also not handled events well.
But does Tuesday’s tit-for-tat actually change the wider picture? Well, no. Refuseniks among LV=’s 1.2 million policyholders will still be minded to vote no, and one can’t blame them. If you invest with a mutual, you expect your board to preserve that status except in the most extreme circumstances. Royal London, to repeat, hasn’t helped by dancing around the question of membership rights but, even at this late stage, it seems a more natural acquirer than Bain.
LV=’s board would be well advised to drop its inflammatory language about Royal London throwing a “hand grenade” into the sale process. Policyholders will decide – and they may decide that LV= and Royal London should talk again. It would be a fair request.
The commercial property storm may be easing
Here’s a sight that hasn’t been glimpsed for six years: an increase in the value of Land Securities’ property portfolio. The uplift wasn’t much over the last six months – just 0.8% on £11bn-worth of assets – but the cold winds of Brexit, Covid and online shopping may finally be abating for commercial landlords.
The story is not straightforward, it should be said. In the world of London offices, utilisation of space is still only 55% of pre-Covid levels as working-from-home continues to be popular; yet some employers must still be keen on new square footage because space under offer is above its 10-year average. Mark Allan, Landsec’s chief executive, explains that puzzle by saying that, in the post-pandemic world, occupiers are looking for “quality, sustainability and flexibility”. That’s landlord-speak, but, yes, that’s plausible. New requirements drive demand.
Over on the retail side, where rents have plunged 40% from their peaks, something similar may be happening. Low prices eventually attract tenants to the better locations. Landsec still quotes the remarkable estimate that 17% of retail floorspace is surplus to requirements and that the ratio could hit 25% by 2025. It’s just that the good stuff gets filled. “Cautious optimism” was Allan’s overall summary.
Over at British Land, note, Brookfield Asset Management, the giant Canadian firm run by the smart Bruce Flatt, was buying its 9% stake a year ago. That was an early hint that the commercial property market might be turning. The signals are getting stronger.
