KEY POINTS:
Guinness Peat Group's play for 35 per cent of insurer and fund manager Tower New Zealand may be intended to flush out another potential bidder for the company, market watchers say.
Shares in Tower, currently 19.7 per cent owned by Sir Ron Brierley's GPG, yesterday rose as much as 20c to $2.28 after emerging from the trading halt put in place ahead of the announcement of the $2.30 a share offer on Friday. However, action in the shares cooled later in the session and they closed at $2.23.
As well as gaining sufficient acceptances to give the additional 15 per cent of the company, GPG must secure 50 per cent shareholder approval for its 35 per cent stake. Under Takeovers Code boilerplate, any investor increasing their stake beyond 20 per cent must make an offer for the whole company.
GPG's New Zealand boss Tony Gibbs, who is also Tower's chairman, has dismissed suggestions 35 per cent would give GPG control but Forsyth Barr head of research John Cairns believed the stake would indeed give them "quasi-control".
As such, Cairns believed GPG should be offering some kind of premium for control in its offer, but with many market watchers valuing the company at between $2.40 and $2.50 a share there was no sign of that in GPG's bid.
"If they were really keen to get 35 per cent I would have thought they would have fine-tuned the price," said Cairns, who added he was somewhat surprised by both the price offered and the size of the stake being sought.
"You wonder whether it's some kind of move by them to flush out a potential bidder for the whole thing."
A local fund manager also believed GPG's bid may be intended to bring other interested parties out into the open.
Tower NZ has been tipped as a potential takeover target a number of times since it split from its Australian operations in late 2006.
Gibbs has repeatedly downplayed the possibility that Tower is being readied for sale but has not completely ruled out a divestment in the future.
However the fund manager, who did not wish to be identified, also observed that should Tower post a disappointing half-year result on May 29, with an offer on the table GPG would be well placed to secure acceptances.
Credit Suisse analyst Arjan van Veen said GPG may simply be exhibiting good timing and acumen by seeking to increase its stake in an underappreciated company with good prospects.
"Tower's share price has drifted downwards over the last few months in line with other financials, unduly so in our view. It's been driven down by sentiment in the sector," said van Veen, who also noted that GPG had moved to incrementally increase its stake in Tower Australia twice in the last six months.
Credit Suisse describes Tower NZ's prospects as "robust" and it has a $4-a-share 12-month forward valuation on the stock.
In the same vein, Cairns said Tower had gone through "extensive repositioning and restructuring" over the last two years and its earnings profile had improved.
"It's our view that is going to continue."
Tower has advised shareholders to hold off taking any action on GPG's offer pending a board evaluation and an independent valuer's report.
THE BID
Why is Guinness Peat Group bidding for a further 15 per cent of Tower NZ?
* At least some market watchers believe GPG may be attempting to flush out a bidder for the whole company
* Others believe the offer is a "typical" GPG move to extend ownership of an undervalued business at a good price.
* GPG has an enviable record of buying undervalued assets, particularly in the financial services sector, helping management bolster value, and then selling out for a handsome profit.
