Watson's Hanover party-crashers want to share Tower cake

By PAUL PANCKHURST

The Eric Watson team crashed Guinness Peat Group's party at Tower yesterday with the message that Tony Gibbs and GPG might need to share the cake around.

The 50 per cent Watson-owned Hanover Group - a financial services company - said it had spent about $13 million on a 4.3 per cent stake in the distressed insurance company.

Hanover chairman Mark Hotchin - like Watson, a 50 per cent shareholder - said the terms of a planned $200 million capital raising for Tower looked too sweet for GPG.

He said the deal should be amended to offer better terms for other shareholders.

Under the GPG deal the corporate raider would be issued with 50 million Tower shares at $1.35 each - swelling its stake to 30 per cent - as well as underwriting a $1 per share rights issue for a fee of $2.7 million.

Critics say GPG will get control of Tower without paying a premium.

An independent report from advisory company Grant Samuel yesterday said the placement to GPG at $1.35 was "fair" and at a "relatively small" discount to a market price of $1.42 when the deal was announced.

The rights issue was open to all shareholders, and therefore fair.

The underwriting fee of 2.85 per cent was at the higher range of market rates, but justified in the circumstances.

The report painted a depressingly bleak picture of a company living by the grace of its bankers.

It also argued that GPG's expected 30 per cent to 35 per cent stake in Tower was not "a controlling shareholding".

Hotchin said: "Grant Samuel says it's not absolute control, but it's as close as you're going to get."

He described the report as "a little disappointing" and pointed to questions that he regarded as unanswered.

One was exactly what alternatives Tower had when it plumped for the GPG arrangement.

The report said directors "considered approaches from two other potential underwriters, but both stated that they could not provide a firm commitment within the timeframe required by Tower".

Hotchin: "I've yet to find anybody who was offered the chance to participate, so I'm not sure who they took it to."

The clock is ticking. It is 17 days until the shareholders' meeting to approve the GPG arrangement.

It is 52 days until the recapitalisation is supposed to be complete, with a A$100 million debt repayment and the refinancing of a syndicated bank facility.

Hotchin asked: "One of the questions that should be asked is, 'Why was it left so late? Has it been left late so that the alternatives are more difficult?' "

Last week, First NZ Capital was tipped by market sources to be working on an alternative proposal.

Hotchin personally viewed an alternative deal as unlikely. "It's certainly tight."