KEY POINTS:
Sixteen years after beginning its push across the Tasman, Tower Group has come full circle with shareholders yesterday voting overwhelmingly to split the company into separate New Zealand and Australian entities.
All four of the resolutions to allow the demerger to proceed were approved with virtually no opposition
by the 100 or so shareholders who attended yesterday's special meeting in Wellington. Proxy votes had already been stacked hugely in favour.
Apart from the demerger itself, shareholders also approved a $160 million rights issue for Tower Australia to be underwritten by cornerstone shareholder Guinness Peat Group and a rejig of executive options, including those of managing director Jim Minto, who will head the Australian company.
In contrast to the often-torrid Tower shareholder meetings that followed the company's 2003 sharemarket rout, yesterday's gathering was a remarkably placid affair with few questions from shareholders.
Tower has argued that the split will create value for shareholders and give the market the opportunity to invest "more cleanly" in either the specialist life business in Australia or the more diverse group of businesses in New Zealand.
The plan will now go to the High Court for final approval on Friday and shares in the demerged companies will begin trading on the New Zealand and Australian sharemarkets on November 21. Tower NZ shares will remain dual listed and Tower Australia shares will be listed solely on the ASX.
Tower first gained a foothold in Australia in 1990 with the purchase of insurance company Adriatic Life.
During the nineties, it grew quickly, acquiring Friends Provident Life Australia, Austrust, Advance Life and FAI Life.
But Minto said yesterday that the company lost its way in Australia when it moved into the wrap or master trust wholesale investment platform business with the acquisition of Bridges in 2000 for A$168 million ($251 million).
Two years later Tower wrote down the value of the business by $36 million, and by a further $20 million the next year, prompting a steep share-price plunge and a subsequent bail-out by way of a rights issue underwritten by long-time suitor Guinness Peat Group.
Since then Tower Australia's fortunes have been reversed as it refocused on its core life risk business.
Tower Australia now consists of three businesses: retail life, disability and income insurance; a group life business which provides similar products on a wholesale basis; and a niche investment business providing primarily superannuation related investment products.
Its A$128 million acquisition of rival PrefSure this year made it Australia's third-largest life insurer.
Much of the money raised in Tower Australia's rights issue, and also in new external borrowing, will be used to pay off debt, most of it owed by the Australian business to Tower NZ.
According to detail on the split provided by the company, about 45 per cent of the group's current sharemarket value will reside in the New Zealand operation and the rest in Tower Australia.
With a current market cap of $1.24 billion, that values post-split Tower shares at about $2.95.
Tower Australia's post-split shares have been valued by the company at A$2 but some analysts have valued them at A$2.50 or even as high as A$2.60, based on the company's appeal as a takeover target.
While Tower Australia has enjoyed a solid recovery over the past few years, Tower New Zealand, which consists of general insurance, health and life insurance and investment businesses, suffered a series of setbacks, including adverse weather events and service issues.
But the firm, now headed by former Promina chief information officer Rob Flannagan, showed some improvement in its first-half performance.
Minto expects the boards of both companies will resume dividend payments shortly after the split after a four-year hiatus.
"Clearly before we announced the demerger proposal we indicated that Tower had the intention of recommencing dividends. The boards have to approve it, not me, but that would be my expectation."
Tower shares, which initially sank after the demerger plan was announced in August, have recovered since then and traded close to a four-year high last week. Yesterday they lost 6c to close at $3.44.
The split
* A Tower shareholder with 1000 shares before separation will end up with 651 shares in Tower Australia and 524 in the New Zealand company.
* Those 651 Tower Australia shares will entitle the shareholder to buy a further 278 Tower Australia shares for A$1.60 each in the rights issue.
* That would leave the shareholder with 929 Tower Australia shares and 524 Tower NZ shares.
