Takeover talk tests tactics at Tower

By GEOFF SENESCALL

Financial services group Tower is understood to have Deutsche Bank on the ready in case a hostile takeover is launched.

Rumours have been circulating that Tower is one of several companies being eyed by potential bidders.

At least one merchant bank is believed to be advising a buyer on Tower.

However, Tower does have a poison pill written into its constitution for any hostile predator. Anyone seeking more than 10 per cent of the company requires approval from 75 per cent of shareholders.

Of concern for Tower, however, is that its share price has been under pressure since listing last year. Holders, who paid the 560c issue price, are likely to be feeling unhappy now that the shares are trading at 480c and may be more receptive to an offer.

Tower shares have been as low as 435c. Takeover rumours have buoyed the price recently.

Tower is not the only company whose low share price is fuelling takeover speculation.

Apart from the four Fletcher stocks which are in play, Carter Holt Harvey, Mainfreight, Montana and Contact Energy are among stocks which have been actively talked about in the market as targets.

Adding to the market chat was heavy buying in the New Zealand dollar last Wednesday. This can sometimes be a sign that an overseas company is positioning itself in currency ahead of a takeover.

Among the possible suitors for Tower talked about in the market are Royal SunAlliance, Westpac, Lloyds and NRMA.

While speculation courses through the market, Tower is not standing still. It has commissioned another merchant banker to access its capital structure. With Australia becoming increasingly important - more than 50 per cent of profits now come from across the Tasman - Tower is looking at setting up a more tax efficient structure there for shareholders.

The aim is to give Australian shareholders access to franking credits (the same as imputation credits in New Zealand).

This would likely see a separate Australia security set up. In order to make it of sufficient size to attract further shareholder interest, Tower may look to raise cash.

The problem, however, is that it is not in need of cash unless it is looking to make a purchase.