GPG vows to fight as Tower sways to a rebel rights proposal

By PAULA OLIVER

The battle for a slice of ailing insurer Tower is far from over despite its board last night electing to run with a rebel proposal to recapitalise its balance sheet.

The new deal means that Tower's heavily criticised agreement with Guinness Peat Group has been scrapped.

Instead, Tower will be recapitalised through a $210.8 million pro rata rights issue pulled together by its own shareholders, angry at the prospect of GPG taking a 30 per cent stake in the company.

The new deal is a fully underwritten four-for-three renounceable rights issue at 90c a share.

First NZ Capital and Credit Suisse First Boston Australia are heading the underwriting.

In deciding between the two offers, Tower's board commissioned independent advice from Grant Samuel.

That advice was released last night, and it stated that the new deal was a preferred alternative to the GPG agreement.

But corporate raider GPG is refusing to give up its battle for Tower.

It has indicated to Tower's board that it wants to exercise its pre-emptive right to underwrite the new proposal.

That would potentially give it a bigger slice of Tower's share register than its present 9.9 per cent, but it would fall considerably short of the 30 per cent stake it sought as part of its own deal.

Tower's board last night said in a statement that it was holding discussions with GPG to ascertain whether exercising the pre-emptive right was "feasible and achievable within the timeframe required".

Doubt exists over the ability of GPG to exercise the clause.

Tower needs the cash injection quickly to meet demands from its banks to repay debt, and if GPG is to take up the underwrite it must do so at the terms presented. They include a condition that $100 million is allocated to sub-underwriters.

Sources indicated last night that GPG would need time to build up those sub-underwriters.

GPG could also be hamstrung by stock exchange listing rules that would require it to seek shareholder approval for the transaction. That would mean more time was lost as another notice of meeting was issued with the appropriate notice period.

Tower's shareholder meeting will still go ahead in Wellington on Friday.

A vote will be held to decide on the removal of its 10 per cent shareholding cap.

The meeting is looming as a showdown between Tower's warring shareholder factions.

Those behind the new deal are considering shutting GPG out entirely by voting against the removal of the cap. That would leave GPG unable to advance its present stake unless Tower's directors waive the cap.

Shareholders Association chairman Bruce Sheppard last night urged people to vote that way. He said that keeping GPG away from the underwriting would create competition and tension for control of Tower - which would be good for shareholders.

Hanover Group chief executive Kerry Finnigan said he had been cautiously optimistic that the alternative deal would win over Tower's directors.

It had been structured to be difficult to refuse, and also to make it hard for GPG to take up its pre-emptive right.

"Hopefully GPG will see common sense and we can all get on with life," Finnigan said.

The new recapitalisation requires Tower's shareholders to inject twice the amount of money they would have had to under the GPG deal.

The rights will be tradeable.

What happens next

Tower's shareholders meet in Wellington on Friday to vote only on the removal of the 10% shareholder cap

If they vote to keep the cap, GPG can not increase its present shareholding

If they vote to remove the cap, GPG will be able to play a part in the underwriting of the new deal

The record date for calculating the rights entitlement is 11 July

The $210.8 million four for three rights issue will open shortly afterward

Tower must repay $109 million in capital notes and $186 million of syndicated debt by August 8

Tower shareholders who have already voted on the resolutions contained in the original GPG deal can revoke their votes and assign a proxy, but they must do so before 11am today.

Shareholders who wish to do so can fax Computershare on (09) 488 8787. They should include their shareholder number and clearly indicate their wishes.