Tower's future cloudy after Suncorp ends takeover bid

Tower's future looks uncertain after Suncorp Group's proposed acquisition of the New Zealand insurer ended and Suncorp withdrew its appeal against the Commerce Commission.

The $236million takeover bid, through Suncorp's Vero New Zealand, was blocked by the Commerce Commission over competition concerns, although both insurers were appealing the decision, which was scheduled to be heard in January.

''Tower has advised Vero that it is willing to negotiate a new SIA [scheme of arrangement], which may result in changes to key terms, following completion of its plans to raise further capital,'' Tower chairman Michael Stiassny said in a statement to the ASX yesterday.

''The Tower board of directors is continuing to develop plans to raise further capital and will update the market with its full-year results on November 14.''

However, Morningstar analyst David Ellis said Suncorp had announced it was no longer proceeding with its appeal of the Commerce Commission's decision to decline its application to acquire Tower.

Suncorp was now dealing with an unrealised loss of about $20million on its 19.99% shareholding in Tower.

Before the end of the scheme of arrangement agreement, Tower was supporting Vero Insurance's appeal and had lodged its own appeal, he said.

''Tower is a small player operating in a highly competitive general insurance market selling commoditised products.

''While management's efforts to progress the transformation programme are promising, over the long term, we expect gains from various business efficiency and customer retention initiatives are likely to be competed away over time via lower premiums.''

In May, Tower reported a loss of $8.4million for the six months ended March 31, narrowing from a loss of $8.7million a year earlier, as the company struggled with escalating costs from the 2010 and 2011 Canterbury earthquakes.

The need for capital and a proposed restructuring shook out competing bids from Vero and Canada's Fairfax Financial Holdings, the Australian-owned company ultimately winning over the Tower board before the regulator's decision.

Tower shares last traded at 80.5c on the NZX, and are down 3.6% this year. Vero offered $1.40 a share, trumping Fairfax Financial's bid of $1.17 a share.

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