NZX clears Tower over deal

By PAULA OLIVER

A stock exchange investigation has found nothing sinister in Tower's surprise underwriting deal with Guinness Peat Group - paving the way for the ailing insurer to finally get the cash it needs.

The decision encouraged investors, pushing Tower's shares up 9 per cent to $1.67 in the fourth consecutive day of gains.

Tower stunned observers on Friday night when it opted to proceed with a $210.8 million rights issue underwritten by GPG instead of a group led by First NZ Capital.

The new offer restricted GPG from taking up any more than 15.6 million shares as part of the underwriting agreement, which would give it a 13.75 per cent stake.

The 11th-hour deal was immediately criticised by Hanover Group, a key member of the First NZ Capital camp.

It complained to the NZX's Market Surveillance Panel that the deal broke listing rules.

The panel met over the weekend to consider both the Hanover complaint, and an application from Tower for a waiver from listing rule 9.2, which requires shareholder approval for any material related party transaction.

Tower needed the waiver to proceed with the GPG-backed underwriting offer.

The stock exchange had indicated that it would suspend trading in Tower shares until it received evidence that the deal satisfied the listing rule.

But in a statement issued just before trading began yesterday, the Market Surveillance Panel granted Tower a waiver and dismissed the Hanover complaint.

It said it was satisfied that the agreement between Tower and GPG had been negotiated at arm's length.

Tower's board had reassured the panel that GPG directors Tony Gibbs and Gary Weiss had no influence in the final decision process.

Four independent Tower directors were involved in the decision to opt for the GPG deal, and GPG had not had access either to the minutes of the meeting or any reports mentioned during it.

The panel said it had no reason not to accept the assurances provided by Tower.

But it did ask Tower's directors to provide signed documents restating that GPG played no part and gained no material advantage in the process.

In dismissing Hanover's complaint that the deal broke listing rule 7.5, the panel ruled that there was no certainty that GPG would materially increase its control over the company through the underwriting.

It said there was no restriction on GPG buying more shares through the market during the rights trading period and going past a 13.75 per cent stake, but other shareholders could do the same.

The panel said that GPG and its lead broker JBWere had taken precautions to ensure that there was not a significant shortfall from the rights issue that would fall into GPG's lap.

It was signing up sub-underwriters to deal with that.

Hanover chief executive Kerry Finnigan said yesterday that he was disappointed with the rulings, but "the outcome is the outcome".

"We have to deal with it."

But while appearing pragmatic, Finnigan would not rule out challenging the legality of the deal.

He said Hanover's team was still poring over the NZX decision.

He did not think that challenging Friday's special meeting vote to remove the shareholder cap would be constructive.

"We don't want to frustrate the capital raising."

Finnigan said Hanover wanted to be a sub-underwriter for the GPG deal, and it had a right to do so.

That wish could become fuel for the fire raging between Hanover and GPG.

GPG's Gibbs last night reiterated his Friday night statement that Hanover would not be offered a role as sub-underwriter.

Other sub-underwriters are now being rounded up, and they include AMP and AXA - which had previously backed the opposing First NZ Capital deal.

Tower has indicated that it chose the GPG deal because it offered cheaper fees and it also allowed Tower to have a say in who the sub-underwriters were.

Shareholders' Association director of advocacy Ross Dillon said the overall result of a pro rata rights issue was a victory for shareholders.

* Tower Australia will reimburse investors underpaid for their investment in Blue Ribbon Products after a judgment by the Federal Court.

Tower estimated the cost of repaying policyholders at $A600,000, ($693,600) and has made provision in its accounts.

In proceedings brought by the Australian Securities and Investments Commission the court said Tower had engaged in misleading and deceptive conduct since early 1993.

What happens next

July 11 - record date

July 14, 15 - investment statement and prospectus mailed to shareholders

July 14 - August 1 - rights trade on the NZX

July 14 - July 28 - rights trade on the ASX

August 5 - closing date for acceptances and renunciations

August 8 - Tower debt due