Worried Tower investors scouting say sources

By ELLEN READ markets writer

Tower shareholders concerned that Guinness Peat Group is about to snatch control of the company at a hefty discount could still be offered an alternative.

But they may not hear about it until after they vote on GPG's proposal on July 4.

GPG is underwriting a capital-raising programme for the financial services company in a deal critics say hands it control of Tower at the expense of other shareholders.

Some institutional investors are publicly unhappy and two market sources say investment banker First NZ Capital is working on an alternative deal.

"It's not appropriate for me to comment," said First NZ investment banking head Rob Hamilton.

Tower chairman Olaf O'Duill said he was not aware of an alternative plan but reiterated that the company had discussions with several parties before settling on the GPG plan.

One complication is that if First NZ or any other investment bank is planning an alternative - which could take numerous forms - it would be hard without the support of GPG, Tower's largest shareholder.

There is normally a 3 to 5 per cent shortfall in rights issues (which is covered by the underwriter) but because Tower has a large number of small shareholders who inherited rather than paid for their shares, the shortfall is likely to be much larger, making the support of the company's largest shareholder particularly important.

GPG's Tony Gibbs said yesterday that he was not aware of any rival offer and that any potential competitor should not count on his company's support.

"There is only one credible party standing up at the moment," he said from London.

Gibbs stressed that if GPG's plan was not approved by shareholders then the company would reconsider its investment.

Tower plans to raise about $200 million - $67.5 million via 50 million shares at $1.35 each issued to GPG, and $135 million from a GPG-underwritten pro-rata renounceable rights issue at $1 a share.

Grant Samuels is carrying out an independent assessment of the capital-raising. Its report is due next week.

GPG holds 9.93 per cent of Tower. The 50 million shares will increase that stake to nearly 30 per cent plus any overhang from the rights issue.

Tower said on Wednesday that it would use the capital to refinance its entire senior debt facilities - $110 million in floating-rate notes and a $190 million syndicated bank facility. The balance will be funded by replacement bank facilities.

Rob Mercer, head of research for Forsyth Barr, said that in the absence of an alternative offer, it would take a "very bold investor" to vote the GPG deal down.