TWR
15/05/2013 14:31
WAV/RULE
REL: 1431 HRS Tower Limited
WAV/RULE: TWR: TWR - application for ruling from NZSX Rule 9.1.1
10 May 2013
NZX Regulation Decision
Tower Limited
Application for Ruling under NZSX Listing Rule 9.1.1
Background
1. Tower Limited ("TWR") is a Listed Issuer with ordinary shares quoted on
the NZX Main Board.
2. TWR's business activities comprise the provision of insurance products
and, until April 2013, certain investment products.
3. On 2 November 2012 TWR announced that it had sold its Health insurance
business unit to nib Holdings Limited for $102 million (the "Health
Transaction"). On 26 February 21012 TWR announced that it had sold its
Investment business unit to Fisher Funds Limited for $79 million (the
"Investment Transaction").
4. At its annual meeting of 21 March 2013 TWR announced that it had sold the
Health and Investment business units following a comprehensive strategic
review conducted by the senior executive team.
5. On 10 May 2013 TWR announced that it had sold most of its Life insurance
business unit to Fidelity Life Assurance Company Limited (the "Life
Transaction"). TWR will sell most of its non-participating life insurance
policies and retain the capital currently held against those policies,
releasing an aggregate value of $189 million.
6. Following the Life Transaction, TWR will retain its 'participating book'
and other run-off life insurance assets, which have an embedded value of $23
million.
7. TWR's Average Market Capitalisation ("AMC") over the 20 Business Days
preceding 10 May 2013 was approximately $365.8 million.
8. The gross value of assets divested under the Health Transaction and
Investment Transaction were in both cases below 50% of TWR's AMC at the time
those transactions were announced.
9. NZSX Listing Rule ("Rule") 9.1.1 prohibits an Issuer, except with the
prior approval of an ordinary resolution of shareholders, from entering a
transaction or series of linked or related transactions to dispose of assets
which would change the essential nature of the business of the Issuer, or in
respect of which the gross value is in excess of 50% of the Issuer's AMC.
Application
10. TWR has applied to NZX Regulation ("NZXR") for a Ruling that Rule 9.1.1
does not apply in respect of the Life Transaction, and that TWR will not be
required to seek shareholder approval for the divestment of part of the Life
Business.
11. In support of its application for a Ruling, TWR makes the following
submissions:
(a) The Life Transaction will not change the essential nature of TWR's
insurance business because:
(i) TWR considers itself an insurer and has operated and continues to operate
within the insurance industry. It is in the business of providing insurance.
It is not seeking to go in a new business direction. TWR considers that its
shareholders view it as an insurance company, rather than a life insurer.
(ii) TWR is not disposing of all of its Life insurance business. TWR is
retaining the closed books of business, including the Whole of Life and
Endowment Policies, annuities and life bonds issued by Tower Life (N.Z.)
Limited which currently have annual premium revenue of more than $10 million
and assets backing the policies of more than $700 million. This retained
business is expected to continue to operate for at least 70 years.
(iii) NZXR's 2005 Kiwi Income Property Trust decision in respect of Capital
Properties New Zealand Limited stated that the 'essential nature' of a
business depends upon the business sector in which an issuer carries on its
business. TWR does not consider that a divestment of part of the Life
Business (as described above), which would leave TWR predominantly as a
general insurer, would amount to a change in the essential nature of TWR's
insurance business. TWR would be retaining its largest business unit (by
revenue) as well as residual life business. TWR's main undertaking will
remain the same following the proposed sale of the Life Business as TWR will
still carry on the business of an insurer.
(iv) Examples of where shareholder approval has been required for a change in
the essential nature of a business include, Max Industries Limited which
changed from being a gold mining investment company to an organic fertiliser
manufacturer (1997). Similarly, TRS Investments Limited changed its business
from corporate training to investment (2007). These represent clear changes
in the essential nature or business direction of the business for those
companies across different industries. TWR does not consider that it will
change the essential nature of its business by selling down parts of its life
insurance business. TWR will remain a general insurer with a smaller life
insurance presence.
(v) TWR has received in-principle advice from ASX that it does not consider
shareholder approval is required under the ASX Listing Rules for the sale of
the Life Business. In coming to its conclusion that shareholder approval is
not required, ASX considered (under the ASX Listing Rules) whether the sale
of the Life Business would result in a 'significant change to the nature or
scale' of TWR's business activities, similar to the wording in Listing Rule
9.1.1(a). While the in-principle decision is not technically binding, ASX
notes that it provides a high degree of certainty as to ASX's approach when
formal notification occurs upon signing of the transaction.
(b) TWR has illustrated to NZXR that the gross value of the assets sold under
the Life Transaction are below 50% of TWR's AMC as at 10 May 2013. On
completion of the Life Transaction, given the nature of the business, there
will be a purchase price adjustment to reconcile the 30 September 2012 'value
of policies in force' figures to actual figures. TWR will then release final
transaction information to the market.
(c) The Health Transaction, Investment Transaction and Life Transaction are
not a linked or related series of transactions for the purposes of Rule 9.1.1
because:
(i) An outcome of the strategic review described at the 2013 annual meeting
was that the full value of TWR's operations across four business units was
not reflected in TWR's share price. TWR considered proposals including
acquisitions, operational alliances and divestment of assets with a view to
maximise shareholder value. There was no expected outcome from the exercise,
and any transactions had to make sound business sense before being
progressed. The strategic review did not determine that TWR should undertake
the Health Transaction, Investment Transaction and Life Transaction and all
proposals were to be considered on their merits.
(ii) The inclusion of the wording 'series of linked or related transactions'
in Rule 9.1.1 is intended to be an anti-avoidance mechanism, and not intended
to link genuinely separate transactions. The provision is intended to prevent
an issuer from selling off certain assets in smaller transactions to the same
or related parties (for example, selling a key part of the business
incrementally) to avoid triggering Rule 9.1.1 or the major transaction test
under the Companies Act.
(iii) Each of the Health Transaction, Investment Transaction and Life
Transactions have been independently negotiated with no guarantee one or more
would proceed.
(iv) Other transactions relating to the divested assets had been considered
prior to the 2012 strategic review. The Health Transaction, Investment
Transaction and Life Transactions were therefore not derived from the
outcomes of the strategic review.
(v) None of the Transactions were conditional on one or more of the others
proceeding, that is entry into one transaction did not promote entry into any
other transaction or influence their terms and conditions.
Rule 9.1.1
12. Rule 9.1.1 provides that:
An Issuer shall not (subject to Rule 9.1.3) enter into any transaction or
series of linked or related transactions to acquire, sell, lease, exchange,
or otherwise dispose of (otherwise than by way of charge) assets of the
Issuer or assets to be held by the Issuer:
(a) which would change the essential nature of the business of the Issuer: or
(b) in respect of which the gross value is in excess of 50% of the Average
Market Capitalisation of the Issuer;
except with the prior approval of an Ordinary Resolution of the Issuer or
special resolution if that Issuer must obtain approval of the transaction or
transactions by a special resolution under section 129 of the Companies Act
1993.
Decision
13. On the basis that the information provided to NZXR is full and accurate
in all material respects, NZXR Rules that Rule 9.1.1 does not apply to the
Life Transaction.
Reasons
14. In coming to this decision, NZXR has considered the following matters: ?
(a) The Life Transaction, in and of itself, does not require shareholder
approval because it does not trigger Rule 9.1.1(a). The divestment will not
result in a change to the essential nature of TWR's business as a general and
life insurer. NZXR considered that TWR's core business is that of a general
and life insurer, and after completing the Life Transaction will continue to
be a general and life insurer.
(b) The Life Transaction, in and of itself, does not require shareholder
approval because it does not trigger Rule 9.1.1(b). TWR has submitted and
NZXR accepts that the value of assets divested under the Life Transaction is
below 50% of TWR's AMC as at 10 May 2013. Rule 9.1.1(b) applies only where
the gross value of the assets divested are more than or equal to 50% of an
issuers AMC. NZXR understands that on completion of the Life Transaction
there will be a purchase price adjustment in order to reconcile the 30
September 2012 'value of policies in force' figures to actual figures at
which time TWR will release final transaction information to the market.
(c) NZXR is satisfied that there is insufficient nexus between the Health
Transaction, the Investment Transaction and the Life Transaction (the "Tower
Transactions") that would result in the Tower Transactions being considered a
'series of linked or related transactions' for the purposes of the Rule.
(i) NZXR agrees the words 'series of linked or related transactions' can
operate as an anti-avoidance mechanism but notes that the Rule goes further
and may capture transactions that come out of a concerted plan or that form
part of a scheme and that are proximate in time. Transactions with different
parties may be a series of linked or related transactions if they are part of
a concerted plan or form part of a scheme.
(ii) The so-called strategic review was not a plan or strategy in itself, but
a process by which a number of possible options for maximising shareholder
value could be considered and executed. Each of the Tower Transactions was
conceived and executed independently of each other and were not part of a
concerted plan towards achieving a single strategic objective. Therefore, the
only 'link' between the Tower Transactions is their proximity in time which
is not in itself a sufficient nexus for them to be a series of linked or
related transactions.
ENDS.
End CA:00236261 For:TWR Type:WAV/RULE Time:2013-05-15 14:31:18
