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TOWER's bid anything but friendly

Tuesday, October 5th 2010, 6:59AM 6 Comments

by Philip Macalister

TOWER is incredibly audacious and a little bit cheeky with its takeover offer for Fidelity. It typical Tony Gibbs style he tries to portray it as something different to reality. On Friday he was using the word friendly and hoping that Fidelity would see the offer that way. The reality is that it’s a hostile bid. I bet it hasn’t been welcomed by Fidelity and I keep having pictures in my mind of Milton Jennings’ reaction when he heard the news. I don’t believe TOWER has a remote chance of success with this offer. Firstly the shares are tightly held with the majority being left in trust by Fidelity founder Gordon Watson. Watson, who died earlier this year, was proud of what he built and a foundation of this business is that it was New Zealand-owned and not one of the corporates. As a number of Good Returns readers have commented, Gordon would be turning in his grave at the moment. Because the people running Fidelity and the trust are so closely aligned with Watson it would be very hard for them to sell. When he died there were questions about what would happen to Watson’s controlling stake. We ran this story which gives you a good feel for the company’s thinking One wonders about TOWER’s tactics with this offer. Maybe it thinks it can be successful as history has shown us that companies set up to break the corporate mould (eg Sovereign and Club Life) have ended up becoming the opposite of what they were born as. Maybe the TOWER bid is to unsettle Fidelity and undermine it in the market place. To create doubt with advisers who support the firm? After all the numbers we are seeing show that Fidelity is doing well in the markets it competes in at the moment. Gibbs, who has been working out of the TOWER offices since he was dumped from the board of GPG, probably has plenty of time on his hands to concoct such schemes. If TOWER really wanted to buy a life insurance company there are others, which start with As, which are far more likely to be willing vendors.
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Comments from our readers

On 5 October 2010 at 8:04 am Richard R said:
Phil what a number of your readers are missing is that the trust holding the shares is not tightly held. It is my understanding that it only needs all the beneficiaries to agree and the shares can be sold.

There is not complete harmony among the beneficiaries.
On 5 October 2010 at 8:53 am Adolf Fiinkensein said:
" only needs all the beneficiaries to agree ...


"... There is not complete harmony among the beneficiaries...."

Think about that Richard R, for more than a minute, why don't you?
On 5 October 2010 at 9:46 am Richard R said:
Adolf, the meaning is that not all the beneficiaries are in line with Gordon's philosophy.
On 6 October 2010 at 12:31 pm Keith Walter said:
You obviously didn't think about it as Adolf suggested but rushed back into print.
Unfortunately, with the format used for making comments on this website you cannot change the textformat to emphasise a point.

Let's see if I can make it clearer for you by puting the words to be emphasised in inverted commas. only needs "all" the beneficiaries to agree.....

...There is not "complete" harmony among the beneficiaries....
On 6 October 2010 at 7:55 pm economic rationalist said:
Tower's initial bid will fail as it too cheap, but expect them to come back. Fidelity's current ownership structure (majority owned by a trust)is not viable in the long term. As both the trustees and the beneficies age, at some point they will want to cash up. Also, Life companies face increased solvency requirements to meet the Reserve Bank's draft standards. It would be difficult for Fidelity to raise new capital if required.

Tower has about 5% to 10% market share in its various businesses (Life, Health, General insurance & funds management) so it needs to get bigger by acquisitions, as its former Australian offshoot did.
On 14 October 2010 at 6:16 pm oscar d nail said:
Does anybody think on the inducement of a premium on each share above its current value? How big should the premium be to induce the current shareholders or the beneficiaries or even the small holders?

In this tough economic time, premium may be something to be captured now rather than waiting for 3-5 years, although just 2.5%. Econ rationalist said “it would be difficult Fidelity to raise new capital if required”. No brainer for the beneficiaries and the 11 main holders and also for the small shareholders to accept the cheap offer.

If it’s not successful then 2.5% is not enough or the current shareholders may say “5%”. At least there is a complete information of how big P should be. Of course the higher the premium the higher the success rate of the takeover.
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