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GPG deal under threat

By Duncan Bridgeman

Friday 27th June 2003

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Corporate raider Guinness Peat Group could be shut out of a deal to recapitalise troubled insurer Tower due to a hole in its own safety net.

As part of its agreement to underwrite a $200 million capital raising, GPG negotiated a clause for a pre-emptive right to also underwrite any alternative issue for Tower.

But sources close to the deal said yesterday that for that to happen GPG and Tower would have to call another shareholders' meeting, which with only a week to go would be impossible.

Tower shareholders are due to vote on the GPG deal next Friday.

GPG, which has a 9.9% stake in Tower, would be obliged to call an emergency meeting under Stock Exchange listing rules if it wanted to invoke the safety net clause, the source said.

While the Stock Exchange can, under some circumstances, grant a waiver, it would be unlikely to in this case.

"The GPG deal will be dead" if the Tower board agrees to the alternative plan, the source said.

The Tower board is considering an alternative proposal to the existing plan that would see GPG move from a 9.9% shareholding to at least 30% and potentially as much as 56%.

The alternative proposal is being driven by First NZ Capital, which would be the underwriter.

Three shareholders, including institutional investors Axa Asia Pacific and AMP plus the Eric Watson and Mark Hotchin-owned Hanover Group, have cobbled together a pro rata-rights issue as an alternative to GPG taking a share placement.

Hanover chief executive Kerry Finnigan said yesterday the rebel group was pushing ahead with the plan and Tower would have a formal proposal in front of it today.

Mr Finnigan said the GPG pre-emptive clause was yet another attempt to block an alternative proposal and it "smacked of foul play."
"We've stepped up here to help shareholders get out some equity in this transaction and at every corner we find something else trying to stop that."

Mr Finnigan and others criticised independent consultancy group Grant Samuel for not including details of the clause in its appraisal report of the GPG proposal.

Shareholders' Association chairman Bruce Shepherd said the clause was a serious disincentive for other parties and therefore should have been included in the appraisal report.

"It effectively can ensure that anyone else coming to the party might put a whole bunch of work in and get nothing out of it," he said.

"[Grant Samuel] went to the trouble of summarising the terms of the underwrite deal so it should have disclosed this as well."

Grant Samuel director Michael Lorimer said he knew about the clause but decided the information wasn't material to the report.

There was no other alternative capital raising proposal on the table at the time and therefore it was not material to the report, he said. "It just muddies the waters that's all."

Mr Shepherd said the rebel shareholders were proceeding because they saw it as the only way to cut GPG out, which they believed needed to happen.

The small shareholders' advocate and fellow critics see the current proposal as too sweet for GPG, which could gain control of Tower at a premium.

Tower urgently needs cash to repay a $A100 million bank loan by August 8.

Tower is seen as still being a good business despite its massive writedowns and bank debt. The plunge in its financial status was brought about largely by accounting policy changes.

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