Strange bedfellows fight GPG

By PAUL PANCKHURST

Ten months ago, Shareholders Association chairman Bruce Sheppard lined up with corporate raider Guinness Peat Group to kill Fletcher Challenge Forests' planned central North Island forestry deal.

Soon after the crucial shareholders' meeting, Sir Ron Brierley's GPG flicked the association an unsolicited $5000 donation.

"We appreciate your support," Oliver Saint of the association wrote in response.

Cynics wondered: "What did that money buy?"

Not much in the way of forelock-tugging, it turns out.

When the news broke this week of an embryonic challenge to GPG's planned $200 million capital raising for distressed insurance firm Tower, Sheppard was, it emerged, firmly bedded down in the rebel camp of shareholders Hanover Group (Mark Hotchin and Eric Watson), Alliance Capital Management (AXA), and AMP Henderson Global Investors.

The association was not just criticising Tower's capital raising but trying to help to pull together an alternative.

Yesterday, the association sent a public letter to Tower chairman Olaf O'Duill, outlining a method of raising the money Tower so urgently needs to appease its bankers.

It could work, the association said, like this:

Part one: make a 10 per cent share placement.

Part two: launch a pro rata two-for-one rights issue at 80c per share, with a minimum level of $120 million in acceptances from shareholders.

Part three: get an underwriter.

The letter said: "The risk to Tower is that if you fail to obtain the underwriter, and fail to obtain necessary acceptances, then Tower will only have the placement proceeds" - say, $28.8 million at $1.35 per share - "with which to meet the banks' requests.

"However, the offer would appear attractive, the institutions appear ready and able to support it, and thus the risk appears small."

After looking at the suggestion, one commentator, Macquarie investment director Arthur Lim, said a more deeply discounted rights issue, with no share placement, would be a better way to go.

First NZ Capital is the investment bank working on getting an alternative to fly.

Intriguingly, the firm - the New Zealand representative of Credit Suisse First Boston - was previously expected to be the organising broker for the GPG-orchestrated capital raising. Rivals are sceptical of whether First NZ can do it.

One investment banker said: "It's difficult to see anything being cobbled together in a short period that would challenge GPG."

Another said: "They're never going to be able to close it within the timeframe that the company needs the money."

What Tower needs, and what its bankers want, is certainty.

The August 8 deadline for repaying an A$100 million ($115 million) loan facility and refinancing a syndicated bank facility looms. However, the GPG deal is not a sure thing either.

The deal would swell GPG's stake in Tower to 30 per cent, via a $65 million share placement, as well as adding whatever shares GPG picked up at $1 each as underwriter.

The critics say the firm would get effective control of the firm without paying a premium. For that reason, the plan may be voted down on July 4. They also say that it - wait for it - lacks certainty.

The argument here is the get-out clauses for GPG are so wide - GPG can terminate for any perceived "material adverse event" - that this is less like an agreement to underwrite than an option to underwrite.

GPG denies that view.

Another uncertainty is that GPG is yet to complete due diligence and, hence, could still pull out if it does not like what it sees.

For these reasons, Shepherd says Tower must get cracking on an alternative - even if that means starting the ball rolling before an underwriting agreement is in place.

The unlikely-looking bedfellows among the rebels are the two institutional investors - Alliance and AMP - and, on the other side of the mattress, the Hanover Group (Watson and Hotchin).

Together, the three shareholders have a powerful 13 per cent stake.

AMP Henderson is believed to have led the charge of opposition, outraged at the prospect of GPG acquiring a dominant stake on the cheap.

Likewise, Hotchin criticises the deal as too sweet for GPG.

Sources close to the GPG camp say Hanover's intention is greenmail.

The scenario would be: Hanover agrees to drop opposition to the GPG capital raising in exchange for, say, a cut of GPG's underwriting action.

That way, a shortfall would see Hanover mopping up shares at the low price of $1 each.

Hanover denies such scheming.

From London, GPG's Tony Gibbs this week told the Business Herald that GPG would not compromise on the essential terms of the planned deal.

One possible sweetener is reaching sub-underwriting agreements with a range of shareholders, but Gibbs was adamant that Hanover, in particular, would get no special treatment.

It was "put up or shut up time", he said.

"My heart does not beat to Eric Watson's drum," said Gibbs.

Dennis Mahn, of the North Shore, is a Tower shareholder.

Yesterday, he got a bundle of paper in the post. It included the notice of the July 4 meeting and voting forms.

He was miffed at the absence of any reference to the possibility of an alternative - "not even a flyer or a stop press".

He wanted to know more.