Solid start for Tower spin-off

Tower's spun-off Australian Wealth Management (AWM) unit made a solid debut on the Australian Stock Exchange yesterday.

AWM shares opened up 8Ac from the A$1 price at which they were issued to Tower shareholders. In early trading, they jumped to A$1.10 with volume at a healthy 849,000 before rising further to close at A$1.20, a 20 per cent premium.

AWM operates the Bridges stockbroking and financial advice business and Australian Executor Trustees, a superannuation business.

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

Tower shareholders voted last month to approve the spin-off.

AWM is buying the two businesses from Tower for A$250 million, with A$120 million paid to Tower through the issue of 120 million A$1 shares and the balance in cash through a yet-to-be conducted A$130 million entitlements, or rights, offer.

Tower's 19.9 per cent shareholder Guinness Peat Group is underwriting the rights issue, which offers AWM shareholders the right to buy more shares at 80Ac each.

Because GPG, as underwriter, will pick up any unwanted shares, analysts predict GPG will end up with more than 30 per cent of AWM. And because of its relatively small size, some analysts suggest AWM is a likely takeover target.

Tower said yesterday it was delighted with the successful listing. The insurer and fund manager said the spin-off should realise the potential underlying value of Tower and AWM and enable them to focus on their core activities.

In a research report, Credit Suisse First Boston placed a 12-month price target of A$1.025 a share on AWM.

"AWM represents a fairly clean growth exposure to the Australian wealth management industry, with strong near-term earnings growth prospects," CSFB said. "We note, however, its relatively smaller scale size presents a higher risk profile."

The mechanics of the rights issue continue until March 14 when shareholders will be mailed statements showing their new AWM shareholding.