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Tower sells medical insurance unit to nib for $102M

Friday 2nd November 2012

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Tower, the insurance and wealth management company, agreed to sell Tower Medical Insurance to ASX-listed nib holdings for about $102 million and plans to return the capital to shareholders. The shares jumped 3.1 percent.

The decision to sell Tower Medical, which has a market share of about 13 percent, came after Tower reviewed all of its insurance businesses this year and concluded it wouldn't achieve "the necessary scale of return in this business in the immediate future."

Tower managing director Rob Flannagan also said net profit in the year ended Sept. 30 was in a range of $51 million to $56 million, exceeding the upper end of analyst estimates.

Nib said buying Tower Medical fitted with its strategy of expanding in international markets. Tower Medical has annual premium revenue of about $140 million and reported net profit of $6.8 million in the second half. The unit ranks second in New Zealand's health insurance market behind Southern Cross Healthcare with 60 percent.

"We've been looking at the New Zealand market for about three years now," managing director Mark Fitzgibbon told BusinessDesk. "We're a believer in big trends, world trends. There's more spending on healthcare and dismantling of international barriers."

He said the New Zealand market was like Australia's health insurance landscape early last decade - "one dominant player, no obvious competitive tension and the government knows budget constraints mean there must be more future private funding of healthcare."

"There is opportunity for a new player," he said. Nib brands would likely be rolled out in the New Zealand market early in the New Year.

The sale to nib is subject to Overseas Investment Office approval and is expected to settle before Dec. 31. Nib will fund the purchase through surplus capital and a $70 million senior debt facility. Nib won't own hospitals or health clinics and expects to contract with doctors and private health providers including Southern Cross.

Tower shares rose 6 cents to $1.99 on the NZX. Nib last traded at A$1.81 on the ASX and has gained 21 percent this year.

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