AWM spin-off will cost Tower $10.6m

Tower chief Keith Taylor

Insurer Tower's spin-off of its Australian Wealth Management business will cost $10.6 million.

And the plan is to list the new company on the Australian Stock Exchange on February 15.

Tower chief executive Keith Taylor told a briefing in Wellington yesterday the move would unlock value in both companies.

"We certainly think the AWM business has been undervalued as part of Tower," he said.

"People have not seen the quality of businesses that are in there."

He expected Tower shares to maintain their value despite the spin-off of a business valued at A$250 million ($273.5 million).

The $10.6 million includes the costs of separating the two businesses, communicating the plan to shareholders, financial, legal and accountancy advice, underwriting fees and printing costs.

The fee to Tower's 19.9 per cent shareholder Guinness Peat Group for underwriting a rights issue is A$2.3 million.

Here's how the spin-off plan works.

AWM will buy the financial planning business Bridges and Tower Trust - renamed Australian Executor Trustees - from Tower for A$250 million.

This is made up of 120 million A$1 AWM shares and an A$130 million cash payment.

AWM raises the A$130 million through a renounceable rights issue.

The 120 million AWM shares held by Tower will be transferred to Tower shareholders on February 11 in a ratio of 29 AWM shares to 100 Tower shares.

Tower will also acquire and cancel 13.5 of each 100 shares held by shareholders.

On February 18, AWM shareholders will be offered more AWM shares at A80c each through the rights issue.

Shareholders will receive 1.355 entitlements for each AWM share held.

The spin-off plan and the GPG underwriting deal will go to the vote at a special meeting in Wellington on January 25.

The plan is subject to court approval and 75 per cent support, while the underwriting agreement needs 50 per cent support.

Tower says AWM's operating profit after tax and before writing off goodwill will rise to A$16.6 million in 2005 from A$15.4 million this year.

AWM expects to pay annual dividends of 40 per cent to 70 per cent of net profit after tax.

AWM has A$13.6 billion of funds under management, administration, supervision and advice.

Andrew Barnes, AWM's chief executive, said A$8 million worth of shares would be issued to Bridges' financial planners.

He said there was "no question" 100 referral arrangements with credit unions would continue beyond 2006.