Vero play is ‘bad news for customers’: expert
A bid by Vero to buy Tower could be bad news for New Zealand consumers, one commentator says.
Vero has thrown its hat in the ring to buy insurance company Tower, offering 10 per cent more for the company than its rival bidder, Canada’s Fairfax Financial Holdings.
Suncorp announced that its subsidiary Vero has bought 11.14 per cent of the company and has submitted a proposal to Tower’s board to acquire the rest, at $1.30 a share – or $219.3 million.
In the meantime it is also approaching shareholders looking to up its stake to 19.99 per cent.
It was revealed earlier this month that Toronto-based Fairfax Financial Holdings had offered $1.17 per share, which represent a 47 per cent premium on Tower’s three-month volume-weighted average price. That put the purchase price at $197m.
Suncorp New Zealand chief executive Paul Smeaton said the proposed acquisition of Tower provided an opportunity to strengthen Suncorp NZ’S strategic position in the highly competitive New Zealand insurance market.
‘‘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.’’
But Michael Naylor, Massey University’s banking expert, said it was wrong to say the New Zealand market was competitive.
‘‘Suncorp and IAG already dominate the New Zealand general insurance market in a way which is rare in other industries.
‘‘Given that Tower is the last remaining general customer player of any size in the New Zealand market, its possible purchase by Suncorp would destroy any chance for greater competition.’’
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.
The insurer posted a full-year loss of $21.5 million last year.
Tower will call a special meeting of shareholders to vote on the offers. Chairman Michael Stiassny said the board’s advice to shareholders was to seek advice and not to sell their shares 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,’’ he said.
‘‘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.’’
Vero’s offer would require approval from the Commerce Commission. Naylor said it was likely to face still opposition.
‘‘Fairfax [Financial] does not face dealing with the Commerce Commission as it is introducing competition,’’ Naylor said.
‘‘Fairfax also has the better capacity to upskill Tower to survive in coming tech-based disruptions. Thus for the New Zealand market and for consumers, Fairfax is the better buyer.
‘‘I can’t see Fairfax quitting so easily. Tower is a bargain at an increased price, so I expect them to counter-offer. However, Fairfax will have an upper price limit.
‘‘Because they will increase competition in New Zealand, 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 so can pay more.’’