Suncorp sells stake in NZ’s Tower, loses some skin

QUEENSLAND’S Suncorp has offloaded its 20 per cent stake in Tower, chalking up a $7 million loss after a takeover bid for the New Zealand insurer was thwarted.

The sale of the Tower stake to Bain Capital Credit, part of the Boston-based Bain Capital investment house, removes a 13-month thorn for Suncorp.

Suncorp had initially tried acquiring Tower, which offers everyday home and car insurance and even some specialist cover for farmers, in February last year. It scooped up 19.9 per cent of shares at $NZ1.40 ($A1.30) and looked to be on the way to winning Tower.

But then in July, New Zealand’s Commerce Commission blocked Suncorp’s takeover offer for the rest of Tower, which has almost 10 per cent of the personal insurance market. The commission was concerned a takeover would lead to higher prices for consumers as Suncorp already has a large presence in New Zealand via its Vero brand.

Suncorp later partook in a capital raising at Tower at NZ40c, and sources with knowledge of the transaction said that reduced the average cost of buying equity to NZ91c. The sale to Bain is at NZ80c a share. It means in reality Suncorp is selling out at a $NZ7.5 million ($A6.98 million) loss.

Through a quirk of accounting, because Suncorp marked the value of the stake down to $NZ45.4 million at the last half-year results, it actually records a $NZ8.5 million gain in the upcoming financial results. Bain Capital Credit describes itself as an investor in assets including equities and problem loans.

Sources with knowledge of the sale said an escalation clause meant Suncorp would receive any difference in share price if a new takeover bid emerged within nine months.

Meanwhile, Suncorp’s banking arm, a small regional player, has also warned about big changes to Australia’s current system with four big banks. The Productivity Commission, examining financial competition, has called for a removal of the Four Pillars policy, which prevents mergers between major banks. The policy “potentially erodes competition” and removes the threat of takeovers for such institutions, the commission said in a draft report.