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Tower shareholders saw their investment sink by nearly 10 per cent when the company split into its separate Australian and New Zealand components yesterday as investors remained confused about how the shares should be priced.
Tower New Zealand shares closed a cent higher at $2.17 after trading normally for the first time since a turbulent and confused period of trading last week on a "deferred settlement basis".
Tower Australia shares, which the company had valued at A$2 when the demerger plan was announced several weeks ago, closed at A$2.19 on the ASX.
An investor who owned 10,000 Tower shares would have had an investment worth $32,800 on November 10 - the last day the shares traded as a single entity.
But yesterday, after Tower Australia shares traded for the first time, that same investment was valued at just $29,683 by the market - a drop of 9.5 per cent.
Tower shareholders this month voted to split the company into Australia and New Zealand arms after management said such a scheme would create value for shareholders and give the market the opportunity to invest "more cleanly" in either the specialist life business in Australia or the more diverse group of businesses in New Zealand.
After the split, investors received shares in Tower NZ, Tower Australia and entitlements to buy Tower Australia shares at A$1.60 each.
Macquarie Equities director of investment Arthur Lim said investors were confused about the relative values of the two arms.
"What it means is that out there in the market place there's such a wide view of what the separate entities are worth that it will probably take the market a little while to find the level."
For instance, Goldman Sachs JBWere values the Tower New Zealand shares at $2.43 and Tower Australia at A$2.31.
However, First New Zealand Capital values Tower New Zealand at $1.75 to $2.10 a share and Tower Australia at A$2.50 to A$2.80 a share.
Lim said that based on the closing price of Tower NZ shares at $2.17, Tower Australia shares should be worth A$2.49, some A30c above their closing price.
Tower Australia chief executive Jim Minto, formerly the head of the combined group, said Tower NZ shares were trading below the company's own valuation.
Nevertheless he was pleased to have the shares trading on a regular basis after trading "under a funny set of rules" last week. "It confused everybody."
Complicated by the need to comply with both Australian and New Zealand stock exchange listing rules, shares in the demerged companies traded on a conditional basis last week.
That saw Tower NZ shares begin trading on their first day last week at $3.25 before plunging to $2.05, then covering virtually all points up to a ceiling of $2.58.
Minto expected to see further "to-ing and fro-ing while everyone gets themselves sorted out into the new year when all the rights trading's gone".
What was clear was that investors were favouring Tower Australia shares over those in Tower NZ.
Brokerage Forsyth Barr saw Tower's remaining upside in the Australian business.
Said Minto: "Australia is just a bigger, faster-growing market."
Tower NZ chief executive Rob Flannagan said that while trading was "all over the place at the moment", he was unconcerned.
"The market will find the balance," he said.
"The shareprice is very important. It's speculative at the moment and shareholders are entitled to do that, but time will tell".
10,000 TOWER SHARES
Before the split
* 10,000 shares at $3.28.
* Total value: $32,800.
After the split
* 5240 Tower NZ shares at $2.17: Worth $11,371.
* 6511 Tower Australia shares at A$2.19: Worth $16,423.
* 2780 entitlements to buy Tower Australia shares for A$1.60 at A$0.59: Worth $1889.
* Total value: $29,683.
