Tower Group sells health insurance arm

CATHERINE HARRIS
Last updated 17:03 02/11/2012

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Tower Group shareholders are in for a windfall as the company sells its health insurance arm for $102 million.

Tower Medical has been bought by ASX-listed health insurer NIB, subject to clearance from the Overseas Investment Office.

Tower Group managing director Rob Flannagan said all proceeds would be returned to shareholders, and possibly more.

The company had been criticised for being too conservative, which in the current climate was not a bad thing, he said.

But ''a lot of shareholders have said that we've had too much capital, which is correct. So we wanted to send a signal to our shareholders that we would be repaying capital and the minimum amount that we would repay would be the amount we're receiving from these proceeds.''

Flannagan said the payout would depend on how the business environment looked when the transaction was settled, but it would not be less than $102m.

Critics of Tower have expressed concerns that its four businesses lack scale and Flannagan himself in a press release said Tower Medical was being sold because it did not think it could achieve the necessary scale or return needed in the near future.

But he denied the company was in break-up mode. Tower had been talking to NIB for three years and other interested parties had emerged as it conducted a strategic review.

There was ''still a  bit of clutter'' to sort through as a result, but nothing concrete and the other businesses were in good shape regardless.

''We have a view of where Tower should be in three years time and that decision is sort of made. Now we're not announcing that until the annual general meeting early next year.

''But there's not a focus to break up the group because Tower will be here in the long term, as far as I'm concerned.''

Flannagan said analysts were valuing Tower too low and released guidance to give the market an indication of its health.

He expected Tower's group net profit after tax to range around $51m to $56m, exceeding the upper end of published analyst ranges.

BT Funds analyst Matt Goodson said Tower appeared to have sold the medical arm slightly cheaper than its embedded value of $119m.

But health insurance was a tough business, with mutual company Southern Cross as a major competitor.
He thought it was ''interesting'' that both the share prices of Tower and NIB were up on the announcement.
NIB had risen 5 per cent and Tower was up 1.5 per cent to a year high of $1.96, a marked improvement from $1.35 a year ago.

''Tower's problem has been it has four sub-scale businesses - health insurance, life, general and funds management - and each of those potentially, maybe there's higher value in being owned by another party,'' Goodson noted.

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''So it's good to see they've moved on this.''

- © Fairfax NZ News

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