Suncorp is facing a multi-million dollar loss after its takeover of Tower Insurance was blocked by the NZ competition regulator, the Commerce Commission.
Suncorp’s Vero NZ subsidiary had bid $NZ1.40 a share for Tower, topping the $NZ1.17 a share offer from Fairfax Financial Holdings, a large Canadian based financial services group.
There has been no word from Fairfax Financial if it will return to the table- it would have no competition concerns.
Vero had built up a stake of 20% in Tower and will now be under pressure to sel that off. It paid up to $NZ1.40 a share for the stake.
Tower’s share price plunged 32 NZ cents or more than 27% yesterday to 87 NZ cents. That values the company at $NZ152 million against the $NZ236 million value of the final bid.
A successful merger of the two companies would have brought together the second and third largest insurers for domestic house, contents, and private motor vehicle insurance in NZ.
A Suncorp spokesman said the company was disappointed by the decision and Suncorp New Zealand CEO Paul Smeaton said he did not believe the proposed acquisition of Tower would have substantially reduced competition in the New Zealand insurance market.
But Commerce Commission chairman Mark Berry said the commission was not satisfied the merger would not diminish competition substantially.
"The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets."
Berry said smaller insurers did not replicate the "level of constraint" that Tower imposed.
"Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage," Berry said.
Suncorp New Zealand has joint venture partnerships to sell its products through AA Life and AA Insurance. Combined, Vero and AA Insurance control 25 per cent of New Zealand’s insurance market. A merger with Tower would mean the company had a 30% share of the market.
This move would have meant two Australian insurance giants, IAG, which has 46% of the total market, and Suncorp, would cover 76% of the insurance market.
Suncorp bid in February, and purchased an 11.14% stake in the company’s shares to cement its position.That was later lifted to near 20% and the offer price was raised to $NZ1.40 a share.
Tower said after the Commisison decision that it would work with Vero to assess the implications for the “Vero Scheme”, the agreement for Vero to acquire all of Tower’s ordinary shares that it does not already own.
Tower said it will be looking at the decision’s impact on its business plans, including whether it will need to raise capital in the coming months, which looks the case.
The bidding war for Tower erupted after the company announced last November that it planned to separate into two entities, creating RunOff Co to handle Christchurch earthquake claims, and a separate body to handle the rest of the business. It was a move that was intended to help the company’s share price. The insurer posted a full-year loss of $NZ21.5 million last year and was looking for new capital.
A special meeting for shareholder approval of the Vero bid that was due to be held in September has been cancelled.
