Old sharemarket darlings face extinction

TERRY HALL
Last updated 05:00 04/03/2013
LED GROWTH: Former managing director James Boonzaier built up Tower.
Fairfax NZ
LED GROWTH: Former managing director James Boonzaier built up Tower.

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OPINION: Roll up! Roll Up! See the amazing shrinking Tower and GPG! Be quick - before they fade away!

Both are shadows of their former high-flying selves. Tower, it turns out, was aptly named. Like the construction towers that build skyscrapers, it rocketed in size in the decade after it was privatised by the Government in 1999, swallowing rivals and becoming a major force in financial services on both sides of the Tasman under South African managing director James Boonzaier.

However, it has shrunk mightily since 2000 when it ran into financial strife in the dot.com crash, allowing Sir Ron Brierley's asset-stripping Guinness Peat to gain control. GPG moved it from Wellington to Auckland, splitting it into three. The Australian arms - Tower Australia, and wealth management business AWM - were sold for substantial profits.

Tower minority shareholders in these restructured companies did well. Tower Australia was taken over, and many remained shareholders in wealth manager AWM (now IOOF) whose share price has risen from A$5.05 to A$8.50 over the past year.

GPG, in windup mode, is aggressively selling its assets, including its 33.6 per cent stake in Tower. Under apparent pressure from GPG's director-undertakers, Tower sold its medical insurance subsidiary to Australian group nib holdings for $102 million late last year.

Last week its investment arm, including KiwiSaver, was sold for $79m to Carmel Fisher's Fisher Funds group (though this was less than the expected $100m).

As part of this deal, the TSB Bank has taken a stake in Fisher Funds, though little is known of the details.

Tower is widely expected to announce the sale of its life insurance division imminently.

The buyer is rumoured to be Auckland-based private firm Fidelity. If confirmed, Fidelity must be laughing: not long ago it repelled a takeover bid from Tower. Tower will be left with one major substantial and profitable subsidiary - its fire and general insurance business which began life as the Dunedin-based National Insurance. This was bought in 1999 by Tower's predecessor the former state-owned Government Life Office. Apparently this division has proved extremely difficult to sell.

Regulators are believed to be opposed to another substantial insurance company being absorbed by either of the two Australian companies, IAG and Suncorp (Vero), that dominate the sector in New Zealand.

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Unfortunately IAG beat Tower to the punch in buying troubled Christchurch-based AMI last year.

This would have made Tower a much bigger player. Presumably, GPG interests on the board scuppered this deal.

Ignoring Tower's minority shareholders, they have been pursuing their own interests, rather than allow Tower to grow.

The immediate future of Tower is murky. Shareholders should learn more at the annual meeting in three weeks, including details of how much money they'll get back as their share of the $200m-plus of businesses sold recently.

GPG still has to find a buyer for its shares. These could go in a trade sale or cash issue to other shareholders, leaving Tower listed as a general insurer. There have been suggestions that newly appointed director Michael Stiassny will become chairman.

In all this, Tower's small shareholders, who own more than 65 per cent of the company, seem to have been overlooked by everyone, including the Shareholders' Association.

Last September, they were told the company was undertaking a strategic review by senior management, the board and investment bank Goldman Sachs.

This would involve "talks with interested parties". This, it turns out, was code for selling the business. Coinciding with this announcement, long-term chairman Bill Falconer stepped down. Possibly he was unhappy with pressure from GPG.

Explaining the need for the strategic review, managing director Rob Flannagan said Tower's strength was not reflected in the market price of its shares when it was achieving strong financial results. (It could be argued that investors were holding back because of the massive uncertainty over the company's future because of GPG's well-flagged plans to sell. The disposals to date have not done much for the share price).

In November, Tower said full-year profits were up a startling 67 per cent to $55.8m after an 86 per cent rise in investment income, a turnaround in earnings from the Christchurch rebuild and a 15 per cent rise in premium income.

Tower is fading on the NZX at precisely the same time as GPG.

Other coincidences: both were listed on the NZX in 1999, both adopted strong growth policies and both were sharemarket darlings; both have been selling assets. The intention of GPG's board of undertakers - appointed after a coup by activist institutions - is to sell everything apart from Coats, the world's biggest thread maker. Coats is the cause of many of GPG's problems.

They got more bad news last week with a surprise anti-trust lawsuit in the United States, which it is defending.

GPG is to be renamed Coats.

Chinese government policy is to encourage its industries to buy industries of global significance. If Chinese interests buy it, they have been playing a clever, waiting game: letting GPG shareholders pick up the costs of lawsuits, pensions and buying new plant in China before they make a bargain-basement bid. This would mean Coats would vanish from the NZX.

Now you see these companies, now you don't.

- BusinessDay.co.nz

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