NZ-based general and life insurance firm Tower will seek to grow by acquisition using a $130 million cash payment it will receive next year from the sale of its wealth management arm, after today announcing board approval for the spin-off.
The group this morning announced its directors were in support of a proposal by consulting group Caliburn Partnership to separately list the wealth management division, which includes Tower Trust and Bridges Financial Planning.
The two businesses will form a new entity, Australian Wealth Management (AWM), which will aim to publicly list on the Australian Stock Exchange in February, pending shareholder approval in late January.
Tower chairman Olaf O’Duill told Money Management this afternoon that Tower would look to use the proceeds of the sale to focus on acquiring businesses in its core areas of operation – life and general insurance.
“The issue for Tower is that it wants to have the power to acquire other businesses as we’d like to be bigger than we are and carry more weight in terms of being attractive to institutional investors,” he said.
“The life and general insurance industry is rife for further rationalisation and Tower finds itself in the position of being too big to be a tiny niche player and too small to be up there with the big guys, and it can’t just grow organically – it has to be acquired or be acquired.”
He added that the firm’s preference would be to acquire other businesses rather than being the subject of a takeover itself.
“We obviously seek to acquire. Although anyone can put an offer on the table and we’re always subject to the vagaries of the market. So while we’re not seeking to be acquired we are realists and recognise that anyone could walk in tomorrow and make a bid for the company,” O’Duill said.
After Tower had indicated it had commissioned Caliburn to conduct a review into a possible wealth management spin-off back in September, there was speculation that it may opt for a trade sale over listing the business unit.
However the notion of a trade sale sparked concerns from some quarters, most notably from some Bridges’ advisers worried that a sale could give rise to potential independence issues.
Under the proposal, Tower will divest its interest in AWM in exchange for approximately 120 million AWM shares, priced at $1, and a cash payment of $130 million.
The AWM shares will be transferred to existing Tower shareholders and, in consideration, an approximately equivalent value of Tower shares held by the group’s existing shareholders will be bought back by Tower and cancelled via a New Zealand Court approved Scheme of Arrangement, which will require shareholder approval.
To meet the cash payment to Tower, AWM will undertake a capital raising of approximately $130 million in the form of an entitlements offer for additional shares in AWM.
The entitlements offer will be fully underwritten by the Guinness Peat Group on terms to be approved by shareholders.
More information regarding the scheme and capital raising will be provided to shareholders in early December 2004, after Tower lodges scheme documents with the relevant regulatory bodies.
