KEY POINTS:
Guinness Peat Group has made an extra A$18 million profit from underwriting Tower Australia's capital raising, and has increased its stake in the company in the process.
As sole underwriter of the A$160 million ($180 million) issue of 100 million new Tower Australia shares, for which rights holders paid A$1.60 each, GPG picked up rights not exercised or traded by shareholders.
There were 13,560,000 unexercised rights, so GPG paid A$21.7 million for shares valued by the market at more than A$40 million. It is also being paid a A$2.8 million fee.
"We're delighted with the take-up levels," said Tower Australia chief executive Jim Minto.
GPG had "done very well out of it, there's no two ways about that," he said.
"Clearly it's gone well for all shareholders".
The take-up from shareholders had been higher than that for Tower's spin-off of its Australian Wealth Management business last year which GPG also underwrote, lifting its stake from 19.8 per cent to more than 30 per cent.
This time, the extra shares GPG acquired took its stake in Tower Australia from 19.8 per cent to 23.86 per cent.
GPG was awarded the Tower underwriting business before the company split into separate Australian and New Zealand entities last month.
Tower did not did not seek bids from other potential underwriters.
Minto said at the time that GPG's proposal was "a very competitive one", a view endorsed by independent valuer Lonergan Edwards.
GPG's directors on Tower Group's board, its New Zealand boss Tony Gibbs and Gary Weiss, were excluded from meetings that considered the underwriting.
Gibbs said yesterday GPG's $2.8 million underwriting fee was "cheaper than anyone else in the market".
On top of the underwriting profit, GPG has made a further paper profit of $63.55 million by exercising its own rights as 19.8 per cent shareholder in the company.
"It's all right for a boy on a rainy day," said Gibbs.
"We're very comfortable with what's happened and I don't run from the fact that we've got some shares that today are ahead of what we paid for them."
Lonergan Edwards valued Tower Australia's shares at A$2 immediately before the demerger, so the A$1.60 exercise price for the rights was already at a discount.
But since the company began trading late last month, they have soared, hitting a high of A$3.17. Last night they closed up A2c at A$2.98.
"We've only made $18 million on paper because the Aussies have all of a sudden fallen in love with Tower Australia," said Gibbs.
He said there could be "a lot of reasons" some Tower Australia shareholders did not exercise the valuable rights.
"There are always shortfalls on every one of these things because a lot people don't care or see it as too hard, and a lot of people might have only 50 or 100 shares."
He dismissed complaints from some New Zealand shareholders who said they'd received documentation about their entitlements too late.
"There was time. They didn't have to get the bit of paper to sell the rights. The group did everything they could to help them ...
"We even extended the closing, we let the next post come through. There will always people that don't post their forms - what do you do?"
"Had the market been valuing them at less, you can bet your boots we'd be picking up a lot more."
