Tower to spin off Australian arm

Financial services company Tower said today it would spin off its Australian operations into a separate ASX-listed business and seek a major capital raising issue.

Chairman Keith Barton said the company believed "that a separation has the potential to create future value for Tower shareholders".

It will raise between A$150 million ($185.9m) and A$180m ($223.1m) via a renounceable rights issue by Tower Australia.

Tower shareholder GPG would underwrite the rights issue, the company said.

Mr Minto said the proposal would allow the boards and management to focus on the respective operations, adding that over time it would lead to a better performance of each entity.

"I do not believe that the separation process will impact adversely on clients, business partners or business arrangements in either New Zealand or Australia," Mr Minto said.

"The outcome will be a further strengthening and focussing of Tower through two separately listed businesses which will benefit not only shareholders but also our clients and business partners."

Mr Minto said the New Zealand and Australian businesses were very different in their characteristics and business operations.

Tower, which operated as purely a NZ business from 1869 to 1990, will become a NZ-focused business.

The Australian company will focus on being a pure life risk provider with a niche investment business.

The Australian business will be demerged, with shares in it to be offered to existing Tower shareholders while there will be a consequent capital reduction in Tower Ltd.

The capital raised would be used to refinance and reshape the existing group debt structures, Tower said.

An improvement at its New Zealand risk business and a strong performance from its Australian operations lifted Tower Ltd's underlying earnings in the first half.

The trans-Tasman insurer in May posted a $32.5m net profit for the first half, representing a sharp decline on the $99.4m net profit reported for the previous corresponding period.

The prior result, however, was boosted by a $78.4m gain from the sale of AWM.

- NZPA