GPG holds joker as new deal emerges

By PAULA OLIVER

Shareholders opposing a $200 million Guinness Peat Group deal to recapitalise struggling insurer Tower appear to have come up with an alternative plan.

Tower chairman Olaf O'Duill said last night that he had received details of a rival scheme from "a credible source" and was considering its contents.

"It's terrific stuff for the shareholders and I'm pleased to get it," he said.

The existing plan, backed by GPG, would take the corporate raider's Tower stake from 9.9 per cent to 29.9 per cent on terms some shareholders consider too favourable.

A further aspect of GPG's deal has angered some investors and could yet disrupt any new plan.

As part of its agreement to underwrite a $200 million capital raising for Tower, GPG negotiated itself a safety net.

Labelled by lawyers and market sources yesterday as "extremely unusual", the safety net is in the form of a clause in the underwriting agreement between Tower and GPG.

It states that should Tower decide not to proceed with the present GPG-backed share placement and rights issue, and instead go with an alternative, GPG has a pre-emptive right to underwrite the alternative issue.

The clause effectively gives GPG two bites at Tower. If it is not successful with its present plan, it can stride right into the heart of any others.

A leading commercial lawyer yesterday said that the safety-net clause was highly unusual and appeared to be very favourable toward GPG.

Others questioned what Tower's directors were thinking when they agreed to it.

"It's one-sided," said Shareholders Association chairman Bruce Sheppard. "That's because Tower's in a corner and GPG bullied them. That's why we can't let GPG get away with it - because once they've eaten your dinner once, they'll want to eat it forever."

The clause could yet disrupt the plans of investment bank First NZ Capital to develop an alternative proposal to inject cash into Tower.

The bank has been heading frantic efforts to get an alternative pro rata rights offer onto the Tower board's table for weeks.

Its effort comes as a result of widespread unhappiness among Tower's shareholders that the existing proposal is too sweet for GPG.

Tower's chairman yesterday defended the safety net clause.

"We negotiated the best deal that we thought we could get at the time. It's pretty simple."

O'Duill said Tower's board had never been desperate when negotiating with GPG, but it had made no secret of the fact it needed to raise capital to pay debt.

"GPG basically gave us a support level we wouldn't otherwise have got. It's a matter of one, the support, and two, the negotiation. We did the best we could.

"In fact GPG may not be prepared to match whatever other deal is on the table now. Just wait and see."

GPG needed its own comfort for offering to write a $200 million cheque and he did not think GPG had made an unreasonable request.

"Others, with the benefit of hindsight, can be bloody experts, frankly. There wasn't a chance in hell of an alternative proposal coming along if GPG hadn't been there."

The deal would lift GPG's stake in Tower to 29.9 per cent via a share placement, provided shareholders give their approval.

That has "stuck in the craw" of rebel Tower shareholders, who are now confident they hold enough of the insurer to vote down the GPG proposal.

But what happens depends on GPG.

It could decide to underwrite the alternative and take up a potential shortfall as high as 20-25 per cent.

Or it could choose to match the alternative deal.

Or, as GPG threatened this week, it could walk away from Tower altogether.

If Tower decides against the GPG deal, it must pay GPG $1.35 million.