Raider set to board Tower

By PAULA OLIVER

Tower yesterday joined hands with corporate raider Guinness Peat Group to unveil an ambitious plan to recapitalise the ailing insurer - but the idea could yet be scuttled by shareholders.

The $200 million capital-raising plan, revealed along with Tower's half-year result, would effectively give GPG a controlling 30 per cent stake in the insurer.

Details of the plan had been keenly awaited by the market since Tower issued a surprise profit warning last week.

Under the deal, GPG will take up a placement of 50 million shares at $1.35. It already holds almost 10 per cent of Tower so that would take it to a 30 per cent stake.

In a subsequent pro rata $135 million rights issue at $1, GPG, as full underwriter, will take up its load of shares in line with its new 30 per cent stake and any overhang.

As long as the deal is approved by shareholders at a meeting on July 4, it will not trouble takeover regulators.

Tower group managing director Keith Taylor yesterday stressed that the capital-raising was not the result of pressure from either regulators or banks.

Tower's board had decided to go ahead with it to pay debt because the volatile investment market meant that the company was too highly geared.

It suffered a substantial bottom-line loss for the half-year, and needs to pay off $100 million in debt in August.

Taylor said Tower had to do something before that debt matured, and GPG was welcome as a cornerstone shareholder.

"Some will say they're getting in at a good price. My response is that that is the business GPG are in," he said.

"Their business is market timing, and they've timed it well. There are not too many people who are going to be prepared to write out large cheques to put into insurance companies at the present time."

Tower chairman Olaf O'Duill said other investors, including investment banks, had shown interest in the group but "nobody [else] put an offer on the table that suited our timetable".

GPG's Tony Gibbs was enthusiastic about the deal, saying his company was paying a premium price of $1.35, above the rights issue price of $1, for its share.

"It's fair and reasonable. This is effectively guaranteeing Tower $200 million. There's nobody else standing out there doing it."

Gibbs said GPG believed Tower had a sound long-term future, but it needed recapitalising and other changes.

Other shareholders were less enthusiastic about the deal.

Some expressed concern that GPG would take control of Tower for $1.35 a share - less than yesterday's market price of $1.51 and well below what Tower says is its net asset backing per share, $3.20.

Institutions hold the key to the deal's success. Shareholder approval is needed for the whole arrangement as well as to remove the present 10 per cent shareholding cap.

At least one big holder was openly sceptical yesterday, and other fund managers expressed quiet concern.

"At this stage we're a little disappointed at the method of the capital raising," said Nat Vallabh, of AMP Henderson.

"The placement effectively gives GPG control at $1.35. Without the placement it would be fine, but it just doesn't look right.

"It's early days, but we might have to say 'no'."

Vallabh said AMP Henderson, which now holds under 5 per cent of Tower, would meet the insurer next week. He hoped the company would shed some light on the deal.

Shareholders' Association chairman Bruce Sheppard said the deal was good for GPG.

He felt the capital raising would have been fairer if it did not include a placement.

"At least the placement is a premium to the rights issue, which on the face of it is at least some punishment for GPG getting a controlling position. But all they're actually paying is 35c on 50 million shares, which is $17.5 million to buy total control. We are being short-changed."

Tower chiefs, when asked if there were other options for capital-raising, said there had been approaches from the investment banking community.

But the question was how quickly it could be done and at what price.

Said Taylor: "GPG came to the party on that before anyone else."