Between the lines: Bid would unlock Tower's value

For many New Zealanders Tower Ltd will forever occupy a place in their hearts as the former Government Life Office.

For just as many others, it retains an attraction as the only locally controlled financial institution of any clout.

But, for how long?

Tower is proceeding down a steady path of Australianisation. It's not just that it has a few Australian directors on its board. More importantly, the majority of its business is now in that country.

This week's takeover of Bridges, a master trust company with $A2.7 billion ($NZ3.5 billion) under management, continues that trend, as it takes Australian-managed assets to 63 per cent of Tower's portfolio.

Tower can hardly be blamed for moving towards Australia. The policies of successive New Zealand Governments have made us poor savers, even if we have made remarkable gains in paying off government debt through taxes.

In contrast, Australia's compulsory superannuation has created a personal savings boom, and it is little surprise that Tower has gone where the growth is.

But the Australianisation of Tower raises a swag of issues for its predominantly New Zealand shareholder base. The first is that if the company's head office moves to Sydney, they will miss out on the imputation credits.

The Australian Government's intransigence on harmonising its rules with New Zealand on this issue would provide another discouragement for New Zealanders.

But much more is at stake. The brutal truth is that at some stage Tower will be taken over. Much depends on the attitude of its board, but it will happen, either before or after the expiry of the five-year limit on individual shareholding levels.

The crucial issue for the New Zealand shareholders will be one of getting the best price for their shares. That same concern was the key, and perhaps the only justification, for the Tower board's vigorous opposition to Guinness Peat Group's takeover bid during demutualisation.

Clearly, GPG undervalued the company.

But Tower's share price has hardly been a great performer since listing, trading at valuations not dissimilar to GPG's bid. Only when there was a whiff of takeover did Tower's price show any life, but it has drifted off since.

A company of Tower's size should attract a substantial takeover premium.

The question is whether, given their propensity to sell, there will be many New Zealand investors left by the time an offer is made.

Regardless of the merits of its bid, GPG had a compelling point when it said the large group of New Zealand policyholders who had financed Tower's expansion had received little in return.

That's hardly justification for an inadequate offer. Many policyholders are still there as shareholders.

A takeover would be their best chance of getting full value. It is time the company was put in play.