Watson 'asked for 50pc cut'

By PAULA OLIVER and PAUL PANCKHURST

Businessman Eric Watson offered to drop opposition to the $200 million Guinness Peat Group-led capital raising for Tower in exchange for "cheap shares" in the troubled insurer, says GPG director Tony Gibbs.

Talking from Italy, Gibbs said Watson telephoned him late last week, offering to drop Hanover Group's opposition to the GPG-orchestrated capital raising in exchange for a 50 per cent cut of the underwrite.

The detail and meaning of the conversation is in dispute and financial services company Hanover denied what Gibbs described as "outright greenmail".

The classic greenmail is where a company opposes a corporate play with the intent of being bought off.

According to Gibbs, Watson said he wanted a large chunk of what the latter described as "the cheap shares" - those to be mopped up by the underwriter after the almost certain shortfall in take-up of a rights issue.

Gibbs said his response was a colloquial two-word phrase.

Hanover is one of a group of rebel shareholders threatening to kill the deal under which GPG would buy 50 million Tower shares for $1.35 each - lifting its stake to 29.9 per cent - and underwrite a $1 per share rights issue to all shareholders.

Gibbs' accusation comes as investment bank First NZ Capital makes frantic efforts to pull together an underwritten pro-rata rights issue as an alternative to the GPG proposal.

Three sources said yesterday that First NZ was to put a proposal to the Tower board on Friday.

Tower is only eight days from a shareholders meeting to approve the GPG deal and the company's bankers are breathing down its neck as it teeters on the edge of default.

The drama is unfolding as one of Tower's shareholders had predicted: "a game of brinkmanship."

GPG and the rebels are staring each other down as Tower edges closer to the August 8 deadline for repaying an A$100 million ($115 million) loan and refinancing a syndicated bank facility.

Shareholders Association chairman Bruce Sheppard told the association's annual meeting in Auckland yesterday that for GPG to take control of Tower on the cheap "stuck in the craw" in the same way as Rubicon's intended gain from last year's defeated Fletcher Challenge Forests deal.

He said a 16 per cent block of shareholders - including the combined 13 per cent stake of Hanover Group (Eric Watson and Mark Hotchin), AMP Henderson Global Investors and Alliance Capital Management - now stood united against the GPG-led deal.

"So, the deal is dead. The issue is what comes after it."

Sheppard said a share placement was not part of the planned First NZ deal.

He and other sources raised a complicating factor: what they described as a pre-emptive right by GPG to counter any alternative proposal.

Meanwhile Gibbs fired shots at First NZ and the Shareholders Association.

He said he was "astounded" that First NZ - the New Zealand representative of Credit Suisse First Boston - had flipped from working on the planned GPG deal to pulling together an alternative.

(JBWere is now organising GPG's proposal.)

Gibbs said: "I think it's quite unacceptable that they can be a broker for one underwrite and at the same time putting together an alternative one ... Behind the bike sheds they are dealing with Watson and all these other guys."

He said the firm had been "sitting in at due diligence, the whole nine yards".

First NZ would not comment.

Tower chairman Olaf O'Duill said: "Tony's entitled to his opinion, but I wouldn't react that way."

As a parting shot at Watson, Gibbs described the GPG deal as the "real world" offer.

"The money is there - this is not an Eric Watson game."

At Hanover Group, chief executive Kerry Finnigan said Gibbs' Tower play was "not going according to plan, so needless to say he's going to be a bit miffed".

A complicating factor in recapitalising Tower is a 10 per cent shareholding cap - GPG sits just under 10 per cent - that would be an issue in either deal.

Opinions vary on whether the Tower board would waive the cap without a shareholder vote.

Hanover has put its hand up as one of the potential sub-underwriters for the First NZ issue.

One investment banker from a rival firm predicted that First NZ would bring Credit Suisse First Boston's balance sheet to the deal. "No one else in this has got the balance sheet to hold it all together," said the banker.

Tower is in a bad state. A report from independent advisory company Grant Samuel said that even after a recapitalisation, "Tower will not be in a financial position to sustain any further material downturn in business or other adverse impact".