The Times - UK - 04.12.2021

the times | Saturday December 4 2021 2GM 53

Business

Oct

2020

Dec

Jan

2021

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Nov

Oct 3, 2020

Bain enters exclusive

discussions to acquire LV=

Dec 18, 2020

Times learns that LV=

wants to bypass one

of its main rules to

overcome a potential

block to its takeover

Dec 17, 2020

First indications of

revolt from members

Jan 4, 2021

It is revealed that a

panel representing

340,000 policyholders

initially vetoed the

takeover in favour of

a rival bid

Jul 26, 2021

Concerns raised over role of

non-executive director

Alison Hutchinson in

pushing through the sell-off

while having links with

Yorkshire Building Society

Nov 17, 2021

Kwasi Kwarteng,

business secretary,

tells LV= to reveal fees

from Bain takeover

May 31, 2021

MPs question Alan Cook's

suitability as chairman in

the wake of the Post Office

submasters' scandal

O 3 2020

LV= in talks over

historic buyout

by US investor

May 312021

Doubt raised

over Cook as

head of LV=

MPs question suitability of

ex-Post Office boss

Nov 4, 2021

It emerges that most of

LV='s 1.2 million

members stand to

receive £100 each from

the £530 million deal

Nov 42021

Rage at LV=

over sale’s

£100 payout

Mutual reveals terms of deal

with Bain Capital

Dec 18, 20 20

Insurer seeks rule

change to ease

historic takeover

Hearts and minds

Trebles all round

at Conviviality

E

ven the biggest Christmas

drunk would struggle to

match the exploits of

Conviviality. In 2018, the

former owner of the

Bargain Booze off-licence chain

went from being a £550 million

company to kaput in four weeks,

stretchered out by administrators.

Shareholders lost all of their

money. And, as one accounting

screw-up followed another, anyone

would have thought that the

management, led by chief executive

Diana Hunter, had spent their days

getting through every one of the

“10,000 alcohol products” in the

company’s range. So it does look

pretty odd that the Financial

Reporting Council has failed to nail

a single director for the farrago

(report, page 54). And not least

when its inquiry into auditor KPMG

for its work on the group’s last ever

annual accounts — for the year to

April 2017 — is fizzing along nicely.

For three years, the accounting

watchdog has been looking into the

“preparation and approval” of

Conviviality’s “financial statements”

by “a member of the ICAEW”, the

Institute of Chartered Accountants.

It doesn’t name the individual. But

it’s understood to be Andrew

Humphreys, the penultimate

finance chief, who didn’t respond to

requests for comment. He quit at

the end of October 2017, six months

before the group went bust in April

2018. He was replaced by Mark
      Moran, who discovered some of the
      accounting hiccups.
      Anyway, the FRC “has decided
      that the test for bringing
      enforcement action... is not met”.
      Still, there did seem to be quite a lot
      to go for. Having led 2013’s float on
      Aim, Hunter went on an acquisition
      binge, snapping up the likes of Wine
      Rack, wholesaler Matthew Clarke
      and supplier Bibendum. Indeed, she
      liked to boast that she conducted
      takeovers from her “mobile office”
      — a Porsche Cayenne Hybrid —
      with a back seat portable printer.
      The shares bubbled up from 150p
      to 400p-plus before the first inkling
      came in January 2017 that things
      might be a little too freewheeling:
      Conviviality was forced to restate
      the half-year results after an “error
      in the calculation” of shares in issue
      cut earnings per share from 9.2p to
      7.2p. But it was a year later that the
      corks really popped. In March 2018,
      the group admitted to an
      “arithmetic error” in a spreadsheet
      that meant it had booked
      £5.2 million of fictitious profits: a hit
      to earnings guidance and credibility
      that took three fifths off the shares.
      Days later came the howitzer that it
      had clean missed a £30 million
      HMRC bill. Then the shares were
      suspended. Credit insurers withdrew
      cover and Conviviality keeled over.
      The accounts, it turned out, were
      largely on paper spreadsheets, with
      companies bought barely integrated.
      So how come the FRC is close to
      bringing a case against KPMG but
      not any director? Short answer:
      because inquiries into directors take
      place under the Accountancy
      Scheme, where a misconduct
      finding requires a higher burden of
      proof than actions under the Audit
      Enforcement Procedure. Often
      there are greater limitations, too, on

the info the FRC can obtain. On top,

it can only go after qualified

accountants. The watchdog wants

wider powers to pursue directors.

And, right now, there does look to

be an imbalance: auditors getting

stung while directors get off scot-

free. Still, at least the Conviviality

crew have something to drink to.

Losing the Point

N

o one gets to be a famous

activist investor, like Dan

Loeb, without an eye for

boardroom spin. So no doubt the

Third Point chief, now gunning for

Shell, will appreciate the efforts of

Asset Value Investors: the activist

giving him a taste of his own

medicine at the London-listed fund

he manages, Third Point Investors.

AVI and two other investors,

Metage Capital and Global Value,

together with more than 10 per cent,

have twice tried to requisition

extraordinary general meetings,

only to have them pompously

declined by the fund’s board. After

attempt No 2, one of its directors

Josh Targoff irascibly pointed out

that company law doesn’t allow

EGMs just so AVI can bat around

ideas over how to close the discount

to net asset value. AVI had to come

up with something tangible.

So AVI called for an EGM to oust

him. The vote was on Wednesday,

after which Third Point declared the

resolution roundly “defeated”,

lambasting AVI for its “self-serving

agenda”. Yet AVI executive director

Tom Treanor reckons that’s “spin”.

He says 52 per cent of independent

voting investors backed the motion.

Take out Loeb’s 17 per cent stake

and it was 75 per cent. So how did

Targoff survive? Because of VoteCo:

a body, with 40 per cent of the

votes, set up to ensure that the fund

could not have a majority of

American investors and end up US-

regulated. It backed Targoff.

The fund points out that VoteCo

was only voting in line with the

advice of proxy agencies ISS and

Glass Lewis, that its shares are up

50 per cent this year and that other

shareholders are fed up with AVI.

John Egerton, of Egerton Capital,

reckons “unsatisfied” investors

should sell “rather than distract the

company by their futile stunts”. But

the vote was not the slam dunk

Third Point pretends. Just the sort

of thing, at a different company, that

Loeb would be the first to point out.

Omicron rates rise

M

ore proof of the mutating

effects of Omicron. It’s

turned Michael Saunders

from a hawk into a dove — at least

to judge by his latest warblings. The

Bank of England ratesetter was one

of only two to vote for an interest

rate rise to 0.25 per cent at the last

meeting. Now he says a “key

consideration” will be “the possible

economic effects” of the variant and

“the potential costs and benefits of

waiting to see more data”. Yes,

maybe it’s sensible. But he should

get himself checked out for bird flu.

[email protected]

business commentary Alistair Osborne

Boots ‘sale’ on table at Walgreens

A report that the American parent

company of Boots is considering a sale

of Britain’s biggest high street chemist

gripped investors on Wall Street last

night.

Shares in Walgreens Boots Alliance

rose by 4.3 per cent, or $1.91, to close at

$46.53 — bucking the trend on a

gloomy day for US markets — after

news emerged of a prospective sale that

could value the UK pharmacy chain at

between £5 billion and £10 billion.

Walgreens, which has more than

21,000 shops globally and employs

440,000 people, is said to be talking to

Goldman Sachs, the investment bank,

to advise it on a review of options that

could result in new owners for the

172-year old health and beauty retailer,

according to Sky News.

There is no certainty at this stage that

the talks will lead to a disposal. Among

the choices understood to be under

discussion is spinning off Boots into a

separately listed company.

An outright auction of the business

would be among the most significant

renewed set of priorities and strategic

direction for the group in October,

which includes a more pointed focus on

North America and on healthcare.

“As underlined during the last WBA

investor conference, the group contin-

ues to be very pleased with the per-

formance of Boots and the inter-

national division as a whole.”

Earlier in the year the American

retail group sold Alliance Healthcare,

its European distribution division, for

$6.5 billion.

Boots is headed by Sebastian James,

55, the former boss of Dixons

Carphone, the phones retailer. He has

presided over a period of renewed

investment in the business after a

period in which its stores were criti-

cised for failing to modernise.

This year Boots has been revamping

regional stores from Aberdeen to the

Isle of Wight by introducing beauty

consultation areas and new brands,

including Drunk Elephant, Mac and

Fenty Beauty, the cosmetics range by

Rihanna, the singer and actress.

deals involving a high street chain for

many years and would be examined

closely by the government and regula-

tors, given Boots’ key nationwide role in

delivering public healthcare services.

Boots, which can trace its roots to

1849 when John Boot opened a

herbalist store in Nottingham offering

an affordable alternative to traditional

medicines, has a network of 2,200

shops, one of the largest in Britain. It

employs 55,000 people, making it one

of the country’s biggest private sector

employers.

In a statement last night, Walgreens

said that it “does not comment on

market speculation and Boots is an

important part of the group. However,

it is accurate that WBA announced a

Bain notoriously alighted on Ibstock,

the British brickmaker, in 2015 and

within eight months sold it on — or

“flipped it”, in the jargon of the private

equity world.

While the Boston-based Bain has

insisted that LV=’s debt load will fall

under its ownership and that it plans to

be a long-term backer of the insurer,

some members remain wary.

One LV= member, who asked not to

be named, said that she viewed Bain as

“an unknown quantity from America”,

adding: “They’re just pursuing us for

an offer from Royal London, another

mutual, that would have preserved its

mutual ethos.

Campbell accused the LV= board of

“obfuscation” about the financial impli-

cations of the deal. Indeed, a perceived

lack of transparency is another criti-

cism that has been levelled at directors.

Some question why the board needs to

demutualise at all when it has a

£690 million capital surplus in the

books.

It is only a couple of years since the

group banked the last of £1.1 billion in

cash after selling its general insurance

division to Allianz, of Germany (a divi-

sion that, confusingly, continues to use

the LV= brand name under licence).

LV= also so far has refused to reveal

the fees that it is paying to the bankers,

lawyers, accountants and public rela-

tions consultants it has hired to work on

the sale, instead saying that it will

publish the costs in full at the end of the

process. A £43 million estimate of the

costs was included in a 167-page docu-

ment available on LV=’s website,

although this figure was omitted from

the information pack posted to all

members last month ahead of the vote.

LV=’s decision to change its rules of

association to pave the way for the take-

over has caused further consternation

among some. At the vote on the Bain

deal, members are also being asked to

approve a plan to change Article 14.23,

which requires a turnout of at least

50 per cent of members in a ballot to de-

mutualise. This is because the rule

effectively acts as a bar to demutualisa-

tion, as turnouts at previous votes held

by the company historically have been

low. At the insurer’s last annual meet-

ing, in September, only 40,004 mem-

bers voted on the resolutions.

Yet it is likely that LV=’s fate has

already have been decided. Members

have been able to vote on the takeover

by post and online since last month and

it is unclear how many will wait until

Friday’s meeting, which will be held

online, to cast their ballot.

Hartigan, who is personally privy to

how the count is going, is still banging

the drum for the deal. “Put simply, the

deal with Bain Capital is the one that

saves the future of LV=. While we will,

of course, respect the outcome of the

vote, we hope members follow our

strong recommendation to vote in

favour of this deal and enable us to

secure the future of LV=, a great British

brand, and preserve jobs in Bourne-

mouth, Hitchin and Exeter.”

It’s extremely rare for mutual

members to rebel in large numbers

against the recommendation of their

boards. In six days’ time, we’ll know for

sure whether enough of his members

agree with him.

financial gain. I don’t believe they’ve

got the interests of the members at

heart. I think they’ll just chew us and

then toss away the remnants.”

John Campbell, a with-profits

member, said: “I am a rather conserva-

tive, traditional type of person who

liked the ‘mutual model’ and appre-

ciated the Liverpool roots of the com-

pany where I once worked.” He said the

notion of “changing fundamentally the

organisation... did not appeal”.

That concern has been repeated by

others, especially as LV= also received

55,000

workers are employed by Boots