Tower builds war chest for buys

By GARETH VAUGHAN

Insurer Tower is going ahead with a plan to spin off its Australian money management business, raising A$130 million ($143 million) for acquisitions in the transtasman life and general insurance markets.

The group will transfer two Australian units, Bridges and Tower Trust, into a new company called Australian Wealth Management, which will be listed on the Australian Stock Exchange.

AWM will give Tower 120 million shares and pay it A$130 million cash. The AWM shares would then be transferred to Tower's 115,000 shareholders, most of whom are New Zealanders and an equivalent value of Tower shares would be cancelled.

AWM will finance the cash payment with its own capital raising, underwritten by Tower's largest shareholder, Guinness Peat Group.

Tower chairman Olaf O'Duill said the move had "a lot to do with trying to have an ungeared Tower with A$130 million spare cash to go and acquire other businesses".

Macquarie Equities investment director Arthur Lim said the move would sharpen Tower's focus on its core life insurance business.

But it would also increase the takeover appeal of AWM and Tower.

Tower's share price fell 5c to $2.35 yesterday.

O'Duill acknowledged Tower was a takeover target.

But no approaches had been made for its other businesses - its Australian and New Zealand insurance units and a New Zealand investments unit.

Asked if Tower had acquisition targets in mind O'Duill said: "Sure. There wouldn't be much point in getting that kind of resource in there without using it".

The Australian wealth management division contributed $6.8 million of Tower's $20.5 million first-half year profit.

Four fifths of that contribution came from Bridges.

Citigroup Smith Barney analysts value the wealth management division at between $181 million and $376 million.

Financial planning firm Bridges has 50,000 clients and had A$3.67 billion of funds under management on March 31.

Bridges' five year alliance with Australian credit union network CUSCAL to supply 110 credit unions with 3.6 million members ends next year. It is about 50 per cent of Bridges' income.

"We would want to see a clear renewal of that alliance to be comfortable about its future prospects," Citigroup said in a research report.

O'Duill said the basis for Bridges and CUSCAL wanting to do business together would continue.

"Whether there's a formal alliance or not I don't know, but the relationship is very good".

Citigroup expects Tower to resume dividend payments with a 3c a share second-half dividend when it reports results on Wednesday.

The AWM transaction requires shareholder and New Zealand court approval.

Detailed information will be given next month.

A shareholders' meeting to approve the plan will be held in January and the listing will follow in February.

Tower facts

Tower is to spin off its Australian wealth management division AWM on the Australian Stock Exchange.

In return it will get A$130 million and 120 million AWM shares, which it will transfer to Tower shareholders.

AWM will finance the cash payment to Tower with a capital raising underwritten by Guinness Peat Group, Tower's largest shareholder.

The deal requires shareholder and court approval.