Michael Stiassny says bidders eyeing a Tower takeover will need to pay at least $1.40 per share; Says the Board's considering a capital raising

Michael Stiassny

Tower’s chairman is reassuring shareholders he is committed to getting more than what’s been put on the table from two bidders, each keen to buy all the insurance company’s shares.

The Canadian giant, Fairfax Financial Holdings, at the beginning of February entered into a ‘Scheme Implementation Agreement’ with Tower, in which it offered to buy all its shares for $1.17 each.

The New Zealand arm of Suncorp, Vero, later in February made a non-binding indicative proposal to buy all of Tower’s shares for $1.30 each. It bought 13.3% for this price and another 6.7% for $1.40 per share, bumping its shareholding up to just below 20%.

Making his bid (which turned out to be successful) to be re-elected as Tower’s chairman at its AGM, Michael Stiassny said: “We currently have two parties who want to buy Tower.

"My job, as I see it in the very short term, is to ensure whomever is the party that is lucky enough to be successful here, has got to pay $1.40, or more than $1.40, for the shares in Tower before we will engage with you again.”

He said both Fairfax and Vero’s bids “validate the Board’s view that the market has significantly undervalued Tower, as well as the value of the opportunity the Tower business represents to other industry players”.

While Tower’s share price was only 79 cents before the deal with Fairfax was announced, it slumped as low as 69.5 cents at the end of November.

It’s the Government’s fault

Stiassny reiterated his view that the Earthquake Commission’s (EQC) handling of claims in the wake of the 2010/11 Canterbury earthquakes is largely to blame for the company’s woes.

The Minister Responsible for EQC, Gerry Brownlee, in February told interest.co.nz this criticism was “complete rubbish”, and said Tower's share price reflected how the company had been run.

Continuing to receive large numbers of over-cap claims from EQC, Tower’s loss widened to $21.5 million in 2016. Stiassny said the velocity of over-cap claims coming in from EQC isn’t slowing.

Tower CEO Richard Harding added: “The ongoing claims development situation is being faced by all insurers. Unfortunately, as the only listed pure New Zealand general insurer, it is most visible with us. We are the canary in the coal mine.”

Speaking to interest.co.nz, Stiassny said neither Fairfax nor Vero were “idiots, and therefore we feel very vindicated that the share price before they got involved was clearly too low, and we still have a view that it’s still too low, but at least it’s moving in the right direction. I think history speaks for itself.”

Tower's share price rose as high as $1.37 earlier this month. It's fallen 4 cents to $1.26 today.

Capital raising being considered  

Stiassny also said the company was considering a capital raise.

“Given the likelihood of a protracted process, the Board may look to raise capital to ensure a prudent level of capitalisation and solvency to protect the ongoing business from contingencies during this period.”

Asked by interest.co.nz what sorts of conversations he’s been having with the Reserve Bank, which sets minimum capital requirements for insurers, he explained: “We are not talking about this for Reserve Bank issues. We’re talking about it because we think it is something that we would look at…

"It is not something the Reserve Bank has either asked us or engaged with us on.”

In terms of a timeframe around a potential capital raise, Stiassny said: “It depends on where we think we’re going.”

Having two different share prices ‘abhorrent’

Responding to shareholders’ concerns that Vero has been able to buy some shares for $1.30 and others for $1.40, he said: “At the present time, it is very clear that Suncorp and Vero have done nothing that would be in contravention of the law…

"Whether the law is right or wrong is a completely different story…

“From a personal perspective, it seems abhorrent that we could have two different share prices…

“As yet, we don’t know what Suncorp’s, or Vero’s, final position is on it either, but we hope we will end up with an offer that is equal to all shareholders.”

From here, Vero can pursue two options to keep increasing its stake in Tower.

It can make an official takeover bid, which would mean it would have to offer all shareholders the same share price.  

Otherwise it could enter into a scheme agreement, like Fairfax has, which would technically mean it could offer shareholders different prices. However it is unlikely it would do so, as this probably wouldn’t be well received by shareholders who would have to vote on the agreement.

Its agreement would need to be supported by at least 75% of shareholders who turn out to vote at a special meeting. These voters would have to represent more than 50% of the total voting rights of the company.

Tower’s board, as well as Salt Funds Management and ACC, which collectively hold 18.1% of Tower shares, in February committed to voting in favour of Fairfax’s proposal.

If Vero goes down the takeover path, more than 50% of the company’s shareholders would have to accept its offer (unless it stipulates for more), for it to go ahead.

Vero has made an application with the Commerce Commission to acquire 100% of Tower's shares. 

Stiassny said the Tower board was considering all its options.

“In the meantime, shareholders do not yet need to take any action in response to either of these offers,” he said.

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9 Comments

Sorry but if my memory is correct did not the chairman originally endorse or even applaud the Fairfax deal at $1.17. And has not Suncorp given undertakings that they will honour their share purchases at $1.30 by enhancing the price to $1.40 or as high as they may end up paying.? The comment in this article seems to be full of double speak as if the audience is nothing but nincompoops. The Australian owned Insurance Companies have not been subjected to any less scrutiny or adverse media coverage and if any one company has been the canary, pigeon or whatever it is AMI/SR, but a convenient memory would overlook that wouldn't it. It is not EQC's entire fault that claims continue to flow, six years on out from under cap. It suited the Insurance Companies to let them be dumped and left to languish there. If instead they had diligently represented their clients with proper and accurate assessments this would not have happened. In my opinion they were well and truly complicit in this ruse and it is their own damn fault that they have, and are still being, stung by the consequences.

According to Stiassny it's all the fault of the remaining holdouts who are trying to maximise their insurance returns. Of course it's alright for him to maximise shareholder returns by screwing down policy holders. Tool.

So your proposal is that insurers should have surveyed every one of their clients properties, even where the information indicated it was highly likely to be under cap. Just on the off chance there might be hidden damage which EQC hadn't detected, that could possibly push the claim over cap.

The resources required under this dual (EQC & Insurers) survey fishing expedition scenario would have been enormous and put back the insurers close out timeline by years. They had no option but to take the triage approach they did.

But - my beef is with how they reacted when policyholders provided reasonable evidence there was likely to be over cap damage and it is here where insurers approaches differed. Sometimes they sent out surveyors immediately to establish the position, others said they wouldn't do anything until EQC decided the property was over cap. In my view the latter is not a fair position to take and it delayed resolution for long periods of time, causing untold stress. Insurers could, under these circumstances carry out the survey and open discussions with EQC on the status of the property.

Policies generally don't expressly require EQC to have declared a property to be over cap before any action such as damage surveys, will be undertaken. Where this express condition does not exist, I believe insurers have an obligation to follow up with an assessment once a prima facie case has been made by the policy holder, that over cap damage is likely to exist.

But it is worth noting that insurers who took a more proactive approach are still being hit with over cap claims. Stiassny makes a valid point about EQCs slowness to identify this group of claims but to assess whether or not he is over egging this factor you'd need to know the approach Tower took on carrying out a full assessment where customers provided evidence of significant damage, before EQC made their over/under cap decision.

Your 3rd para is the pertinent one. It would be a good pointer to canvass the so called joint assessments & how many of those were then left with EQC. For heavens sake as Mr Hooker has pointed out if a claim left under the cap turns out to be a rebuild then you can only get it that wrong if you want to get it that wrong and don't try & tell me that Insurance Coy's were not willing parties to that. The chairman complains about claimants maximising their returns through use of lawyers and suspect engineers. OK then how about simply lifting the gagging orders inflicted on settlements reached on the eleventh hour of the court case. What would be revealed would destroy in one swipe all these holier than thou assertions by the chairman. Commercial sensitivity.? What twaddle & rot. Tower have much more to keep hidden one would think!

Not detracting from the general thrust of your sentiments except to challenge the assertion attributed to Hooker that the under/over cap status should be bleedingly obvious. If he said that, he doesn't understand the on the ground reality down in CHCH as it is common for minor differences in measurements to send a claim one way or the other. Millimetres of tilt variation can determine the fate of the house. You often need detailed engineering analysis to determine the position and it's not uncommon for engineers to disagree. It's nowhere near as simple as 'you can only get it that wrong if you want to get it that wrong'. Deciding the over/under cap status can be very complex indeed.

Yes your comment about evidence gathered by claimants being ignored rings true enough but that is a simplistic, understated and limited observation. Is there no concern then for the elderly, poor and vulnerable who simply had neither the wherewithal or resources to obtain their own reports. They became the easy prey! Most insurance companies, and Tower certainly did, wrote goodwill letters to their clients shortly after both the Sep 2010 & Feb 2011 EQ's undertaking to make their own assessments and work with EQ on their clients behalf. In fact the policy authorised them to do so. That initiative, like those who could not defend themselves, was soon abandoned and the easiest and most effective means was to have EQC keep them under the cap.

classic rhetoric from a liquidation expert trying to squeeze the very last traces of value out of a doomed company. In his own words, Vero aren't idiots, and won't pay over the odds for Tower's incalculable earthquake liability.

Why do you think the EQ liability is 'incalculable' when Tower is emphatic that about 95% of their claims are resolved and Stiassny has publicly stated they are well ahead of the other insurers ?. Clearly that would mean the scope for surprises on the down side is very low.

Exactly!

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