Stock exchange demands answers from Tower

By TIM HUNTER

Trading in Tower shares will be suspended today unless the struggling insurer can show the stock exchange by 10am that its latest recapitalisation scheme meets listing rules.

The shares closed on Friday up 8c at $1.53 after Tower's board chose a $210.8 million rights issue package underwritten by 9.9 per cent shareholder Guinness Peat Group, in preference to a package put together by broker First NZ Capital and 4.3 per cent shareholder Hanover Group.

The decision stunned many observers, including Hanover chief executive Kerry Finnigan, who described it as "reprehensible behaviour".

The stock exchange immediately demanded evidence from Tower that the new deal satisfied listing rule 9.2, which deals with related party transactions.

Tower group managing director Keith Taylor said last night that dialogue between Tower and the stock exchange was continuing, and talks were going on even while the exchange was issuing its demand on Friday night. He was confident the exchange would approve the plan.

The Herald understands stock exchange and Market Surveillance Panel staff met yesterday and on Saturday to consider the issue.

Shareholders Association chairman Bruce Sheppard said last night that the exchange was likely to suspend Tower shares unless it got further information on GPG's panel of sub-underwriters.

As underwriter, GPG can buy shares left unsold through the rights issue and thereby increase its stake. Although the deal caps GPG's direct holding at 13.75 per cent, without strong sub-underwriters GPG could end up holding substantially more than that.

"There is not a finalised panel," Taylor said last night.

"There will be very soon."

He said a GPG deal had been in place since last Monday, but the stock exchange had denied GPG a waiver to proceed with the scheme because it could increase GPG's control over Tower without shareholder approval - breaking listing rule 7.5.

It was only on Friday afternoon that GPG offered the board a plan that seemed to satisfy that condition by capping GPG's stake at 13.75 per cent.

GPG also undercut First NZ Capital's underwriting fee, giving the Tower board another reason to approve its scheme.

Sheppard described Tower's decision as "penny wise and pound foolish".

Tower had scrapped a viable and fair capital raising scheme in favour of one that looked cheaper in the short term but could cost shareholders a control premium later.

Tower, which needs the $210 million to pay down debt due next month, is now embroiled in disputes.

GPG is challenging the stock exchange's decision to reject its waiver application.

Hanover may yet issue a legal challenge to Tower's shareholder vote on Friday that lifted a 10 per cent shareholding cap, clearing the way for GPG's deal.

Sheppard said Finnigan could apply to the courts to have the decision cancelled because some votes were not counted.