A furry of activity in insurance yesterday with Suncorp revealing a 50% plus plunge in profit for its life business in the six months to December, and is now reviewing its ownership; the AMP taking a huge, multi – million dollar hit (first outlined late last year) against its life business and a surprise bid emerged for the NZ based insurer Tower (TWR) from a big Canadian finance group.
Canadian insurer and investor, Fairfax Financial Holdings (not linked to Fairfax Media) has emerged as the ‘saviour’ of struggling NZ based insurer, Tower with a $NZ197 million agreed bid.
Fairfax Financial revealed a $NZ1.17 a share cash offer yesterday. That’s a 48% premium to Tower’s closing share price on Wednesday and a 47% premium on Tower’s volume-weighted average price over the past three months.
Shareholders holding more than 18% of Tower’s issued shares are in favour of the deal which also has been unanimously supported by the insurers’ board. (unless a better proposal is made).
Given Tower’s problems with claims from the Canterbury earthquake in 2011, plus new claims from the big South Island quake last year and tough times in the Australian insurance market, a counter offer is thought unlikely.
Tower had announced in November it planned to separate into two entities, creating RunOff Co to handle Christchurch earthquake claims.
It was a move that was intended to help the company’s share price and separate the lingering problems in Christchurch from the rest of the business. The insurer posted a full-year loss of $NZ21.5 million last financial year.
Tower chairman Michael Stiassny said that separation would now not go ahead if the takeover deal was approved.
"Given the substantial premium to Tower’s share price, the certainty provided by the Fairfax Proposal and the support it has received from Salt Funds Management and ACC, the board determined to unanimously recommend the Fairfax proposal to all shareholders, in the absence of a superior proposal. Tower’s separation strategy will be pursued in the event that the Fairfax Proposal is not successful."
Fairfax chairman and chief executive Prem Watsa said in the statement Tower had a long history, good brand recognition and market strength.
"The acquisition of Tower will provide us with an immediate significant presence, with a strong management team, which will continue to be led by Richard Harding, in a market where Fairfax currently has limited exposure.
"The key factors in Fairfax’s ability to present an attractive proposal to Tower were the speed at which the transaction could be conducted, the reputation of Fairfax for closing transactions and treating stakeholders fairly."
The Fairfax Proposal is subject to approvals from the Reserve Bank of New Zealand, the New Zealand Overseas Investment Office, Pacific Islands regulatory authorities, and Tower shareholders.
Tower will call a special meeting of shareholders to obtain shareholder approval in April. Tower’s ASX- and NZX-listed shares surged by more than 40% to $A1.06 and $NZ1.12, respectively. No one expects a counter bid.
