Tower takeover battle begins

An Aussie heavyweight has made a bid to acquire the on-market NZ insurer

Tower takeover battle begins

Insurance News

By Maryvonne Gray

Two weeks after Canadian firm Fairfax Financial Holdings launched its $197 million bid for Tower, a takeover battle has emerged with Suncorp-owned Vero upping the stakes.

Suncorp this morning confirmed reports from Australian media overnight that its wholly-owned subsidiary Vero has acquired 11.4% of Tower’s ordinary shares in New Zealand and was now looking to up that to 19.9%.

The Australian insurer also confirmed it had submitted a proposal to Tower to acquire the remaining 88.8% of shares at a price of $1.30 per share.

Suncorp New Zealand CEO Paul Smeaton said the proposed acquisition of Tower provided an opportunity to strengthen Suncorp New Zealand’s strategic position in the highly competitive New Zealand insurance market.

“The proposed acquisition supports our vision to be the number one choice for New Zealanders and our strategy to connect customers to products, services and experiences that enhance and protect their financial wellbeing,” Smeaton said in a statement today.

“The proposed acquisition would consolidate Suncorp’s position in the New Zealand general insurance market, creating a business with gross written premiums of $1.6 billion.

“The combined business would generate significant shareholder value through cost efficiencies, as well as reinsurance and technology synergies,” he said.

Tower released its own statement to the market acknowledging that Suncorp had approached shareholders via investment bank UBS to initially buy up to a 19.99% stake in Tower at a fixed price of $1.30 per share, with a view to escalate the offer to 100% of all shares.

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The statement also included a strong caution to shareholders not to make any quick decisions.

Tower chairman Michael Stiassny advised shareholders to wait until the board had fully reviewed the offer and made a further announcement.

“The board’s primary focus remains to optimise value for our shareholders. In order to do so, we need to review and evaluate all options.

“We will update the market on any further material developments as the circumstances require,” he said.

The board also reiterated that Tower insurance policies and the rights of policy holders remained unaffected and would still remain so in the event of a change of ownership of the company.

The news will come as no surprise to market analysts.

Forsyth Barr analyst James Bascand said at the time of the Fairfax announcement that his firm believed there was a better offer out there.

“We believe there is potential for a higher offer from one of the Australian-owned NZ general insurers,” he said.

“Having a competitor with a far larger balance sheet than Tower is likely to be concerning to current players relative to the current environment.

“We believe an incumbent could pay 11.0 x (NZ$1.31) for Tower, albeit note that antitrust issues may become a factor.”

Tower buyout rumours first emerged in September 2016 after the company suffered hit after hit from Canterbury claims, with legal disputes adding to the company’s issues.

The two main contenders were reported as IAG and Suncorp with IAG categorically denying any interest in a takeover and Suncorp reiterating its policy of not commenting on market speculation.

Related stories:
Industry reacts to Tower acquisition bid
Canadian buyer for Kiwi insurer
Insurer’s FY16 $21.5m loss prompts claims company spin-off
Tower buyout rumours fly across the Tasman
Insurer’s definitive answer on Tower speculation

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