Investors challenge GPG

By PAUL PANCKHURST

A revolt by key shareholders may kill the controversial Guinness Peat Group plan for a $200 million capital-raising for distressed insurance company Tower.

Three shareholders with a combined 13 per cent stake - AMP, AXA and the Mark Hotchin/Eric Watson-owned Hanover Group - are working on an alternative pro rata rights issue.

First NZ Capital, the local representative of Credit Suisse First Boston, is tipped as the likely underwriter.

The rebel shareholders could take sub-underwriting roles and GPG would be cut out of the action. Shareholder approval is unlikely to be needed for a pro rata issue.

An independent report on the GPG plan, presented by advisory company Grant Samuel on Tuesday, describes a pro rata issue as "arguably" a better option, but says no one has committed quickly enough to an underwrite.

The report also highlights the increasing intransigence of the company's bankers and an August 8 deadline for repaying a A$100 million ($115 million) loan and refinancing a syndicated bank facility.

A shareholders' meeting to approve the GPG deal is 15 days away.

Despite the looming deadlines, and despite the past talk of GPG as the only option, Tower chairman Olaf O'Duill yesterday indicated it was not too late for an alternative deal.

Told of shareholder sentiment hardening against the GPG deal, O'Duill said: "That's fine. They're entitled to their view. But until I and the board see an alternative offer that can reasonably be adjudged to be better than the GPG offer, then I'll be going to the [special meeting] with the current proposal."

He said that anyone who could write a cheque for $200 million would have the board's attention.

From London, GPG director Tony Gibbs fired a salvo at Hanover Group for saying GPG needed to offer a deal with better terms for other shareholders.

"They should put up or shut up," he said. "We have the ability to write out a $200 million cheque. I very much doubt that they do."

Under the GPG deal, the corporate raider would be issued with 50 million Tower shares at $1.35 each - lifting its stake to 30 per cent - as well as underwriting a $1 per share rights issue for a fee of $2.7 million.

Critics say GPG will gain control of Tower without paying a premium.

Talking of Hanover, Gibbs said: "If they want to bring this down, then they should be prepared to face the consequences."

The Grant Samuel report paints a worst-case picture of the banks moving in and taking control if Tower defaults on debt repayments.

The report describes the placement to GPG at $1.35 as "fair" and at a "relatively small" discount to a market price of $1.42 when the deal was announced.

It says the rights issue is open to all shareholders - and therefore fair - and the underwriting fee, while at the higher end of market rates, is justified in the circumstances.

The question now is, can the rebels get a deal to the table, and quickly?

On Tuesday, Hanover's Hotchin told the Business Herald: "If something else was going to happen, it would need to happen now."

Market sources say that if an alternative plan emerges it will be before the July 4 shareholders' meeting, which could become a meeting that never happens.