Suncorp closes in on Tower

AUSTRALIAN and New Zealand general insurer Suncorp Group is about to expand its New Zealand operations with the planned acquisition of Tower Ltd.

Tower’s board is backing the increased takeover bid from Suncorpowned Vero Insurance, provided the $236 million offer wins approval from local regulators, including the Commerce Commission, Reserve Bank and Pacific Island regulators.

Tower has signed a scheme implementation agreement with Suncorp, under which local subsidiary Vero will pay $1.40 a share to buy NZXlisted Tower.

The deal, which trumped an earlier merger proposal from Canada’s Fairfax Financial Holdings at $1.17 a share, valuing Tower at $197.3 million, is subject to the merger getting antitrust approval from the Commerce Commission.

Morningstar analyst David Ellis said Vero’s upgraded offer was 20% higher than the one from Fairfax.

‘‘We expect a favourable decision will be announced by the Commerce Commission in the next few weeks,’’ the Australianbased analyst said.

Suncorp’s New Zealand business reported a profit of $36 million for the six months to December 31.

Morningstar expected a 2017 financialyear profit of about $90 million for the New Zealand operations.

Tower was expected report a cash profit to of $16.5 million, so the financial impact of the acquisition would not be significant for Suncorp’s earnings, Mr Ellis said.

The merger of the two insurers would provide strategic benefits and boost Suncorp’s estimated market share to about 30%, still well below market leader Insurance Australia Group’s 45%.

Tower was struggling with only 5% market share in a very competitive general insurance market, he said.

‘‘We can see the benefits of increased scale, improved customer service and products, and access to Suncorp’s expertise and financial resources.’’

But New Zealand’s general insurance industry was very competitive and exposed to frequent and expensive natural disasters, particularly earthquakes.

Increasing exposure to a region which was geophysically unstable was questionable, Mr Ellis said.