Tower saga limps to a sorry ending

By PAULA OLIVER

After three months of procrastination Tower's board has decided its largest shareholder, Guinness Peat Group, broke the terms of an underwriting agreement. It has also decided to do nothing about it, delivering a limp end to a sorry saga.

The decision will do little to eradicate a view among some Tower shareholders that GPG has too much influence over the company's board.

The situation stems from Tower's recapitalisation last year when GPG offered to revive the flagging insurer by underwriting a new share issue.

GPG entered into an agreement with Tower that it could not secure more than 13.75 per cent of the company as a result of the underwrite. It if did, it had to decrease the shareholding within six months.

GPG was, however, free to buy as much of the company as it liked on market and, to cut a long story short, GPG ended up with too much of Tower.

Just before the six month-deadline in February, GPG sold the excess shares - cunningly, to itself.

One broker labelled the move "two fingers to Tower and the stock exchange".

Yesterday, Tower chairman Olaf O'Duill issued a statement that said Tower had engaged QC David Williams to evaluate the situation.

Williams' opinion was that GPG did breach a clause in the underwriting agreement but that neither Tower nor any shareholder had suffered loss or damage as a result of it.

The prospects of Tower suing GPG and winning were minimal or non-existent, he said.

O'Duill then said that he did not believe there was any duty on the directors of Tower to initiate legal proceedings.

On the contrary, if substantial sums of money were spent suing GPG and Tower lost, the directors could be accused of being in breach of their own duties.

There is no doubt Tower's board is stuck in a difficult position, but the blame for that must fall at least partly at the feet of the board itself.

GPG, meanwhile, has cleverly pulled off a deal that sees it hang onto the shares it got as part of the underwrite for 90c each, instead of having to re-purchase them on market for closer to $1.40.

If anything, this saga demonstrates that GPG is going to look after its own interests first - even at the risk of upsetting its fellow Tower board members.