GPG's lean on Tower costs a cool $50m

By Richard Braddell

Between the lines

What a difference six or seven months makes. That's the time that Tower's managing director, James Boonzaier, reckons Tower's demutualisation was delayed by Guinness Peat Group's attempted hijack.

And that was more than enough time for a raging market for life company stocks to go soggy, with a little help from management ructions at National Mutual and AMP's billion dollar disaster with Australian general insurer GIO.

At the mid-point, Tower shares, according to its own indicative estimates, are now worth about 10 per cent less than in April, a reduction in value to Tower's members of about $50 million to $468 million.

Admittedly, Tower has taken a conservative approach in its valuation, pricing the shares at 13.2 times earnings, or at the bottom end of valuations for the majors which range between 13 and 17.

Tower's conservatism will be of some solace to members. But those members still have reason to wonder what might have been had they been free to get on with things sooner.

Not so Guinness Peat, which came up with a handsome deal while the market was hot in April to sell Tower's intended merger partner, Tyndall, to Royal & SunAlliance for $A750 million, or close to 23 times earnings.

That price was more than $200 million above the $686 million put on Tyndall for the purposes of the Tower deal. But while it might go a small distance towards allaying concerns that GPG was badly undervaluing Tower, even on today's conservative estimates, the $328 million GPG put on Tower was clearly inadequate.

But if the offer was inadequate, GPG clearly had Tower's measure in another important respect, that of coming up with information. While Tower has often skirted around the nitty gritty, we should be grateful to GPG for its frankness in distributing its own proposal to media and putting it on the internet to be viewed, warts and all.

Not so Tower, which insisted last year that its own 465-page scheme of arrangement be viewed only under the watchful gaze of Tower staff.

Again, GPG came to the rescue by badgering its own copy out of Tower and then giving it to interested media for their detailed examination.

But even with GPG off the scene, Tower seems uneccessarily reticent. It was coy on Monday in admitting that its prospectus had been registered. And reporters at the launch at its Wellington headquarters yesterday were initially expected to be satisfied with its investment statement, a watered down document aimed at less experienced investors. It was only after protest that the prospectus was produced.

Given Tower's path to demutualisation, a bit of caginess might be understood. But coy habits have no place on the stockmarket.