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Brierley's Mercantile Investment backs buyer of Tower life business

Tuesday 26th August 2014

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Veteran corporate raider Ron Brierley's Mercantile Investment Co is backing the buyer of general insurer Tower's life business, Foundation Life (NZ) Holdings.

The ASX-listed investment company has committed $4.75 million to back Foundation Life's $36 million purchase of the life insurance business, which is expected to settle on Aug. 29. Mercantile, Brierley's third diversified investment vehicle, has paid a deposit of A$184,780, and will pay the balance once Foundation Life has obtained all the necessary approvals, it said in its annual report. The company will buy a combination of units in Foundation Life Holding Trust and redeemable preference notes in Foundation Life (NZ) Holdings.

Tower announced the sale in July, having already sold its health, life and investment units to focus on general insurance. At the time, Tower chief executive David Hancock said while his company had decided to retain Tower Life, Foundation Life "came to us with a proposition that recognised appropriate value for shareholders."

Foundation Life counts Melbourne-based Richard Davies as its sole director, and Foundation Life Nominees Pty as its only shareholder.

Guinness Peat Group, which Brierley built up after being forced out of Brierley Investments in the early 1990s, sold its cornerstone stake in Tower last year after liquidating its portfolio when investors blocked a plan to divide up the empire under regional lines. Since then, Brierley has brought in his old lieutenants Ron Langley and Gary Weiss to Mercantile.

Brierley seized control of Mercantile, then called India Equities Fund, in 2012 when shareholders agreed to a deal giving him 54 percent of the company and its chair in return for his stakes in Copper Strike, Trinity Group, ING Community Living Group, Australian Pharmaceutical Industries and Trojan Equity.

That's since been watered down to 46 percent after Mercantile completed a takeover of Murchison Metals via a scheme of arrangement, which let investors take either cash or shares.

Mercantile lifted its total financial assets to A$41.4 million in the 12 months ended June 30 from A$29.9 million a year earlier, generating a 20 percent gain in total income to A$7.53 million from gains on the sale of investments and revaluations of its assets.

As at June 30, Mercantile's biggest investment was in Ingenia Communities Group, valued at A$24.5 million, followed by Trinity Group at A$2.27 and Fitzroy River Corp at A$2.22 million. It valued its stake in Murchison Metals at A$3.65 million at the balance date, before the merger was finalised.

"It is in the intention of the directors that the company will continue to selectively invest in ASX listed share market opportunities that the directors consider offer the prospect for attractive risk-adjusted returns," Brierley said in his report. "Although the present focus is on the Australian market, as the directors have extensive international investment knowledge, occasional oversees opportunities may arise as these sorts of opportunities are considered to be part of the normal activities of the company."

Mercantile's board didn't declare any dividends in the year.

The ASX-listed shares last traded at 12.5 Australian cents, and have shed 11 percent this year. The shares were trading at 6.8 cents when Brierley took control in 2012.

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