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Canada's Fairfax Financial Holdings offers to snap up Tower for $197m

Thursday 9th February 2017

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 Canada's Fairfax Financial Holdings has offered to buy Tower for about $197 million, pushing the insurer's shares up 41 percent to $1.11 on the news. 

The Canadian company has offered to pay $1.17 a share, a 48 percent premium from Wednesday's closing price.  The transaction has been unanimously approved by the Tower board and shareholders holding 18 percent of the company - Salt Funds Management and ACC - have entered into firm voting agreements in favour of the transaction. 

“The acquisition of Tower will provide us with an immediate significant presence, with a strong management team, which will continue to be led by Richard Harding, in a market where Fairfax currently has limited exposure," said Prem Watsa, chairman and chief executive of Fairfax.

The Fairfax proposal is subject to conditions including approvals from the Reserve Bank of New Zealand, the Overseas Investment Office, Pacific Islands regulatory authorities, and Tower shareholders, Tower said. It expects to receive OIO and final High Court approval by mid-May and anticipates the transaction will be wrapped up by June. 

Tower provides car, house, contents, business, travel and other personal insurance lines in New Zealand and the Pacific Islands. Fairfax has stakes, through subsidiaries, in property and casualty insurance and reinsurance and investment management.

The Auckland-based insurer posted a loss of $22.3 million, or 13.21 cents per share, in the year ended Sept. 30, from a loss of $7 million, or 4.79 cents, a year earlier. In November it said the claims from the Canterbury earthquakes were taking longer to settle and costing more than other comparable events and it planned to corral the claims into a separate company called RunOff. It suspended its annual dividend to preserve capital for the new entity and said it was evaluating the potential of getting additional funds from capital markets or strategic partners to enable the separation.

On Thursday, it said during the course of planning for the separation it was approached by Fairfax. “Given the substantial premium to Tower’s share price, the certainty provided by the Fairfax proposal and the support it has received from Salt Funds Management and ACC, the board determined to unanimously recommend the Fairfax proposal to all shareholders, in the absence of a superior proposal. Tower’s separation strategy will be pursued in the event that the Fairfax proposal is not successful," said Tower chairman Michael Stiassny. 

Tower will call a special meeting of shareholders to obtain shareholder approval. This meeting is expected to be held in April 2017. Approval at that meeting must be by at least 75 percent of votes cast, representing more than 50 percent of the total voting rights of the company.

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