Canadian firm targets Tower
Shares jump as major players show liking for the deal
Insurer Tower looks set to be bought by Canadian company Fairfax Financial. The proposed acquisition, which was unanimously supported by the Tower board, was for $1.17 per Tower share, for an aggregate cost of $197 million.
The price represents a premium of 48 per cent to Tower’s closing share price yesterday and a 47 per cent premium to the company’s threemonth volume weighted average price.
The statement said two of Tower’s major shareholders, Salt Funds Management and ACC, which collectively hold 18.1 per cent of the company’s shares, had entered into “firm voting agreements under which they have committed to vote in favour of the deal”.
Fairfax Financial chief executive Prem Watsa said the acquisition would provide the company with an immediate presence in a market where it had 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,” Watsa said.
The deal is subject to approval by the Reserve Bank, the Overseas Investment Office, Pacific Islands regulatory authorities, and Tower shareholders. Tower will call a special meeting, scheduled for April, to obtain shareholder approval.
Approval must be by at least 75 per cent of votes cast, representing more than 50 per cent of the total voting rights of the company.
The Tower board said the deal would not affect Tower insurance policies or the rights of policy holders.
The insurer’s shares closed up 33c at $1.12.
Massey University senior lecturer in finance and insurance Michael Naylor said Tower had been facing difficulties for some time now, with the share price dropping drastically for several years.
Tower had ongoing disputes with reinsurer Peak Re, as well as the government’s natural disaster insurer EQC, he said.
Another large earthquake would likely bankrupt the company, Naylor said.
“So they had to do something. It would be hard to raise enough funds via a rights issue so a sale is the most obvious way out.”
The deal should be good for New Zealand’s quake claimants as it provided a deep-pocketed owner who would want to get all the claims off the books as fast as possible.
“It’s better for customers than a sale to the two major Aussie firms,” he said.
Shareholders Association chairman John Hawkins said the deal was concerning but not a huge surprise.
“It is an issue for the NZX that another company is subject to a takeover. We are losing companies faster than we are gaining them on the stock exchange and that is a concern for the future,” he said.