Sinking Tower provokes crocodile tears

By NZPA

Friday 8th November 2002

The crocodile tears could be heard hitting the ground a mile away.

One-time predator of fund manager Tower, Guinness Peat Group (GPG) was in the position this week of extending its sympathy to the company which has been savaged by disappointed investors in the last week.

"I'm not going to kick a company when it is down -- I think it is very sad what has happened to Tower and I wish the company well," GPG director Tony Gibbs said following the evaporation of 50 percent of Tower's share price in two days.

Speculation has arisen again about the possibility of Tower becoming a takeover target following its $100 million turnaround from forecasts of a healthy $70 million annual profit to a $40 million loss.

GPG may head the queue of potential stalkers when a 10 percent shareholder cap, designed to keep takeover bidders at bay, disappears early next year.

But Tower, which changed its name from Government Life in 1989, could consider any offer before then if shareholders agreed to waive the protection.

GPG sought to delay Tower's listing in 1999 and merge its 52-percent owned Australian insurance company Tyndall with the New Zealand company.

The corporate raider finally lost the battle for Tower at the Privy Council, and sold Tyndall to Royal & Sun Alliance.

However, GPG said this week it was still watching New Zealand's second largest fund manager.

Asked if Tower's share price, which dipped to a low of $1.60 from $3.55 in two days' trading, represented good buying, Mr Gibbs told the Dominion Post: "I don't know... unfortunately these things can become self-fulfilling".

Shareholder numbers fell to 116,000 from 123,000 when Tower listed.

This is not the first time Tower has been considered ripe for takeover, with acting chief executive Keith Taylor acknowledging any listed company was potentially up for grabs.

Various sharebrokers have in the past tagged Tower as a target for one of the big Australian insurers or banks.

But Mr Taylor says the company's shares have been unfairly whipped by the market, and it is no more a takeover target today than before the profit warning.

"Most of the issues are one-off items, and the ongoing profitability -- which is what you're valuing when you value the company -- is essentially unchanged.

"Directors wouldn't recommend a takeover offer unless it was fair in respect to that valuation, and relative to what directors think the business is going to do in the future.

"Obviously when the share price is so low a few people might think about it, but I don't see that as a factor in the meantime."

At current prices, Tower's market capitalisation is $324 million. For the September 2001 year, Tower's revenue totalled $1.22 billion.

Behind the forecast loss, which includes at least $88 million in writedowns and restructuring costs, were the effects of poor investment markets; writedowns of Tower's new computer system; and operational writeoffs on Tower's Australian business.

Tower has also paid $9 million in redundancy, termination and restructuring costs, including a controversial $2 million golden handshake for former chief executive James Boonzaier.

A lot of concerned investors have kept Tower's phone lines hot this week, worried that the drop in share price would scramble their nest eggs.

To reassure clients, Tower sent a letter to its investment advisors saying its managed fund, health, life and general insurance businesses remained separate and secure.

Tower lost some Australian customers during the year by raising disability premiums, but it retains roughly 500,000 clients across the Tasman, compared with its 800,000 New Zealand customers.

Questions have been asked about Tower's sudden reversal in fortune, given the company's recent confident forecasts. Tower says it was unaware of many items until thrown up by audit results last week.

ASB Securities managing director Tim Preston said the degree of the writedowns in Australia had shocked the market, which had been braced for some losses to show up as a result of weak international markets.

"I think one of the reasons the market has marked Tower back so heavily is it leaves you wondering, where does the company go from here," Mr Preston said.

"It's tried to expand into Australia and seeing the results of that now -- there's a real question mark of, do they just become a bit marginalised. The market will look at that and price them accordingly.

"(New Tower Australia chief executive) Jim Minto has a very proven track record in New Zealand ... But it's not an easy task picking up the pieces."

The market was struggling to affix a price to Tower because of the uncertainty.

Given the good quality of Tower's core business, "the majority of its operations do have appeal to some of the bigger players who can get some real synergies out of it".

Mr Taylor said Tower was happy with the amount paid two years ago for Bridges Australia, which is currently being valued by an investment bank to estimate how much it needs to be written down by for the finalised reports due on December 5.

Bridges was written up last year, and it has a current carrying value of just over $A180 million ($NZ205.7 million).

"A lot of (analysts) last year discounted the writeup, in terms of their analysis, and one would expect them to have the same response if we write it down," Mr Taylor said optimistically this week.

"We've been in Australian insurance and wealth management sector for 11 years, this is the first time any significant issues have emerged."

Tower has traded profitably in the first month of the new financial year, and the company expected to grow in the Australian market through increasing current business and by acquisition.

But the acquisition prospect in New Zealand -- speculated to be Guardian Trust or Royal and SunAlliance -- which threw up $4 million in due diligence costs appears to be off the agenda.

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