Insurance academic Dr Michael Naylor has spoken out about the takeover bid for
Tower that
Suncorp has proposed this week, saying while it may be good for
Tower shareholders, it would be bad for NZ consumers.
Naylor, who is a senior lecturer in finance and insurance at Massey University’s School of Economics and Finance in Palmerston North, took issue with Suncorp NZ CEO
Paul Smeaton’s description of the New Zealand market as ‘highly competitive’.
“Suncorp and
IAG already dominate the NZ general insurance market in a way which is rare in other industries,” he said.
“Given that Tower is the last remaining general customer player of any size in the NZ market, so its possible purchase by Suncorp would destroy any chance for greater competition.”
He went on: “The Suncorp CEO states ‘the highly competitive NZ insurance market’, but he is simply wrong.
“The house and contents insurance market is currently highly uncompetitive and the loss of Tower to the existing duo would effectively end any potential competition.”
News broke this week that Suncorp had first acquired 11.4% of Tower shares via its subsidiary
Vero before then putting in a proposal to acquire the remaining 88.8% of shares, outbidding
a proposal made by Canadian firm Fairfax Financial two weeks ago.
Naylor said he had welcomed Fairfax’s bid.
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Unlike Suncorp, Fairfax would not face dealing with the Commerce Commission as it would be introducing competition, he said.
“Fairfax also has the better capacity to upskill Tower to survive in coming tech-based disruptions,” he explained.
“Thus for the NZ market and for NZ consumers Fairfax is the better buyer.”
Naylor said he anticipated ‘very stiff opposition’ from consumer advocates and that Fairfax wouldn’t quit easily.
“Tower is a bargain at an increased price, so I expect them to counter offer,” he said.
“However, Fairfax will have an upper price limit. Because they will increase competition in NZ, profit margins may decrease after they come in, so they may be less willing to pay a premium.
“Conversely, Suncorp can use the effective duopoly after the purchase to increase profit margins.”
Tower has cautioned its shareholders not to make any quick decisions and to wait until the board had fully reviewed the offer and made a further announcement.
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