's Tower plans to list Australian arm on stock exchangeSource:...

's Tower plans to list Australian arm on stock exchange
Source: WELLINGTON, Sept 14 NZPA
Published: Tuesday September 14 2004, 7:00 PM

Tower is trying to flush out trade buyers by announcing plans to spin off its Australian wealth management business, which may be worth about $255 million, analysts say.

The trans-Tasman insurer announced yesterday that it planned to separately list the Australian arm, which includes Bridges and Tower Trust, on the Australian Stock Exchange with about $8 billion of funds under management.

Shareholders would have shares in both businesses under the proposal, which was subject to an independent review.

A trade sale could free up cash for a special payout to shareholders, and if a sale at about $255 million was achieved, it could be worth about 62 cents a share. advertisement

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By spinning off the Australian operations, either through a listing or trade sale, it would also improve the attractiveness of the New Zealand businesses as a takeover target, Macquarie New Zealand investment director Arthur Lim said.

With 19 percent Tower shareholder Guinness Peat Group (GPG) behind the scenes, that could be the end game.

"It certainly makes Tower much more attractive," Mr Lim said.

"It is fairly clear that while they are talking about spinning off the Australian wealth business into a separate entity with a view to listing it as a separate company, the interpretation of what they say is along the line that there is going to be a trade sale process, and the IPO going hand-in-hand," Mr Lim said.

The process would encourage potential buyers to show their hand, Mr Lim said.

The board had recognised that there was "a bit of cleaning up to be done" before the businesses were saleable.

Alliance Capital portfolio manager Andrew Bascand said: "Clearly no one wants to buy the whole business as it stands. No one is interested in the combined Australian and New Zealand businesses."

GPG also appeared to be saying it did not want to buy any more of the Australian business itself, Mr Bascand said.

"I suspect they are going to say let's IPO it, but in fact it is there for sale and when you do that, generally you get trade buyers come along."

Mr Lim said assuming a sale at $255 million, that would allow Tower to return capital to shareholders or make acquisitions in its core life risk business and the strong New Zealand wealth management franchise insurance.

"It frees up cash and resources. It gives the company flexibility in terms of capital management, dividend payout or to make acquisitions. So it is value enhancing."

Tower bought financial planning group Bridges in September 2000 in an unsuccessful bid to build sufficient market share to compete, Mr Lim said.

Given the competing bids for Bridges in 2000, "There is every reason to believe that subject to price, other entities will be interested in it."

Tower had got itself back into shape and the Australian arm had returned to profit.

Bridges had a 150-strong adviser network which would be attractive to other wealth management companies like AXA or a bank looking to improve their distribution network, Mr Lim said.

But Mr Bascand said though Bridges would add useful business, it did not offer a crucial market advantage to buyers.

The lack of a funds management division in Australian business could also hamper a sale.

Potential buyers like Citibank or National Australia Bank employed much bigger numbers of financial planners and had grown their businesses organically, Mr Bascand said.

The sale of the Australian business would leave Tower with a "very small New Zealand business" which would be of little interest to GPG in the long run.