By Nick Stride and Rob Hosking
Friday 30th May 2003
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At a briefing to announce a $154 million loss and a $200 million capital-raising chairman Olaf O'Duill and chief executive Keith Taylor laboured to convince the market the group had taken a "prudent and conservative" approach to valuing its struggling Australian subsidiaries.
The huge writedowns, which follow a first round six months ago, reduced Tower's shareholders' funds to $531 million from $767 million in September and $924 million a year ago.
John Cairns, an analyst at sharebroker Forsyth Barr, said there was concern Tower Australia still hadn't been written down to an appropriate value.
Excluding Bridges Financial Services, Tower Australia had an embedded value in Tower's books of $425 million compared with net tangible assets of $311 million.
The broker had a value for Bridges of $120 million, against Tower's value of $159 million.
Rickey Ward, a fund manager at Guardian Trust, said Tower's book net tangible asset backing was now $3.20 but some analysts estimated it at only 50c excluding intangibles.
Tower bought Bridges in September 2000 for $A168 million ($224 million). Bridges' value of $159 million represented 16 times annual net earnings of about $9 million but a more appropriate multiple was 12, indicating it was worth only $108 million, Mr Ward said.
Despite those reservations analysts said the deck-clearing and recapitalisation had improved Tower's position significantly.
Forsyth Barr has a sum-of-parts valuation of $1.99 and has upgraded its recommendation from reduce to hold.
Tower's $200 million recapitalisation, which will see Guinness Peat Group move from 10% shareholding to at least 30% and potentially as much as 56%, has also raised eyebrows.
GPG will pay $1.35 each for a placement of 50 million new shares. A pro rata rights issue at $1, underwritten by GPG, will then raise $135 million.
"We would have preferred a pro-rata issue at one price without a placement," said Nat Vallabh, a fund manager at AMP Henderson, which owns just under 5% of Tower.
GPG was effectively gaining control at a premium of only 35% to the price other shareholders would pay. A one-for-one issue at $1.15 would have raised the same amount.
"That way the shareholders could have made their own decision."
Mr Taylor suggested GPG had been given the underwriting job because no investment bank could meet the required time frame. A $100 million debt repayment is due in August.
Bank sources said yesterday that was rubbish.
"GPG has been jollying them along knowing there were debt repayments coming up," one investment banker said.
"Now it's holding a gun to their heads."
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