Tower rights rise rapidly on debut

12.00pm

Share rights for cash-strapped insurer Tower Group's Guinness Peat Group-backed capital raising rose quickly after they began trading on the New Zealand Exchange this morning.

After starting at 26 cents they rose to 31 cents within a few minutes.

According to Friday's closing price of the head shares of $1.57 they should have traded at 28 cents.

"People are seeing this as an opportunity to get holdings in the stock," JB Were broker Murray Rutherford said.

He said the beginning of rights trading is usually when the maximum selling pressure is exerted.

Shareholders on Tower's share register are eligible to buy four new shares at 90 cents each for every three held in the company's $211 million capital raising.

The underwrite could see Guiness Peat Group's (GPG) stake in Tower rise to above 20 per cent.

However, under the Takeovers Code any holding above 20 per cent means GPG would be obliged to make a full offer to other shareholders.

GPG has told the Takeovers Panel if its stake rose above 20 per cent it would rely on clause 19 of the Takeovers Code which provides an exemption for underwriters underwriting is their "ordinary business".

But the Takeovers Panel said in a statement it was unlikely to allow GPG to rely on this exemption because underwriting was not its ordinary business.

Meanwhile, Tower announced this morning it will sell its personal and corporate trustee services subsidiary Tower Trust New Zealand Ltd to US based private investment company Sterling Grace Corporation for $25 million.

The sale will take place on July 31, subject to satisfaction of remaining conditions.

Tower Trust administers wills, estates and trusts and has a range of estate and investment planning products and services. It is also New Zealand's leading corporate trustee, providing that sector with corporate trustee services as well as services for funds management.

Tower Group managing director Keith Taylor said today the sale of Tower Trust was one of a number of steps the group has taken to refocus its business and lay the framework for a turnaround in performance.

"We are directing Tower's resources towards delivering a multi-niche risk and wealth management strategy in both Australia and New Zealand. As we have said previously, part of that process is the ongoing review of the ownership of Tower's businesses and their fit with our strategy for the future," Mr Taylor said in a statement to the New Zealand Exchange.

"Tower Trust is a profitable, well-managed company, however we have decided that it does not have the strategic fit we require for the future."

Mr Taylor said Tower was approached by Sterling Grace, and after they conducted exclusive due diligence, a purchase price of $25 million was agreed.

"Sterling Grace has obviously seen the value in Tower Trust as a strong and dynamic company, a well managed market leader in its field," he said.

Sterling Grace has had a presence in asset management and financial services in major global markets, including Australia, Japan, New Zealand, Europe and the United States over a number of years and currently manages a significant, diversified portfolio of investments worldwide.

Sterling Grace President, Mr John Grace, said the company was now looking to establish a solid presence in New Zealand and to apply its expertise in managing large portfolios of investment and trust business to further build on the local Tower Trust operation.

"This is core business for us and an opportunity made more exciting because of its scale, its 'first-class' business infrastructure, and we believe, our ability to grow it and create further value," he said.

As part of the purchase agreement, the Tower Trust name will be retained for an interim period. As New Zealand's first trustee company it is likely that the company's original name of Trustees Executors will be reverted to.

- NZPA