Canadians launch bid for Tower

A Canadian insurance company is set to buy Tower for $197 million.

The insurance company was put into a trading halt before it revealed the proposed deal yesterday.

Toronto-based Fairfax Financial Holdings is offering $1.17 per share, which represents a 48 per cent premium on Tower’s closing share price on Wednesday and a 47 per cent premium on Tower’s three-month volume-weighted average price.

Insurance commentator Michael Naylor said the move was not a surprise.

‘‘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,’’ he said.

‘‘It’s unlikely that the Commerce Commission would OK yet another sale to the big two [insurers]. This way only Reserve Bank OK is needed.’’

He said Tower, outside earthquake claims, was a good company which should rebound once the quake claims were removed.

The deal would be good for earthquake claimants because it provided a deep-pocketed owner who would want claims off the books as fast as possible.

‘‘How will Fairfax [Financial] treat New Zealand customers is now a key issue – with a long-term view to retain Tower’s reputation, or with a short-term extract-value manner? It’s sad that another New Zealand firm goes but given the black swan nature of New Zealand earthquake risk, maybe one-smallcountry firms are non-viable?’’

Shareholders with more than 18 per cent of Tower shares have voted in favour of the deal. The deal is unanimously supported by the insurers’ board, unless a better proposal is made.

The Fairfax proposal is subject to approvals from the Reserve Bank, the Overseas Investment Office, Pacific Islands regulatory authorities, and Tower shareholders.

A special meeting to obtain shareholder approval is expected to be held in April. Customers will not be affected.