Tower board, major shareholders back $197 million takeover bid from Canada's Fairfax Financial Holdings; Tower's share price rises as trading resumes

A Canadian insurance company, touted ‘Canada’s Berkshire Hathaway’, has agreed to buy Tower Limited for $197 million.

Tower and Fairfax Financial Holdings have entered into a ‘Scheme Implementation Agreement’, whereby Fairfax plans to acquire 100% of Tower shares at $1.17 per share.

Tower is the third largest insurance group in New Zealand. Fairfax Financial Holdings is a Toronto-based holding company, listed on the Toronto Stock Exchange. It is engaged in property and casualty insurance and reinsurance and investment management through its subsidiaries.

The transaction has been unanimously approved by the Tower board of directors.

Two of Tower’s major shareholders, Salt Funds Management and ACC (who collectively hold 18.1% of Tower shares), have also entered into firm voting agreements under which they’ve committed to vote in favour of the Fairfax Proposal.

Tower, in its announcement to the NZX says: “The price of $1.17 per share represents a premium of 48% to Tower’s closing share price on 8 February 2017 and a 47% premium to Tower’s three-month volume weighted average price (VWAP).

“Since announcing on 29 November 2016 its intention to create RunOff Co, Tower has progressed planning for separation which was designed to provide a path to unlock unrealised value for shareholders. In the course of this work, the Board had been approached by Fairfax.”

Tower Chairman Michael Stiassny says: “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.”

The halt placed on Tower share trading this morning has been lifted further to the takeover announcement.

Tower’s share price has risen from 79 cents to $1.11. It hasn’t been this high since September last year.

Fairfax CEO and Chairperson Prem Watsa says: “Tower is one of the largest insurers in New Zealand and the Pacific Islands, with a long-standing history, good brand recognition and a strong market position.

“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.

“The key factors in Fairfax’s ability to present an attractive proposal to Tower were the speed at which the transaction could be conducted, the reputation of Fairfax for closing transactions and treating stakeholders fairly.”

The Fairfax Proposal is subject approval from the Reserve Bank of New Zealand, the New Zealand Overseas Investment Office, Pacific Islands regulatory authorities, and Tower shareholders.

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

Tower says: “In the absence of a superior proposal, each Tower director has undertaken to vote all Tower shares in his control in favour of the Fairfax Proposal at that meeting.

“Tower shareholders do not yet need to take any action in response to the Fairfax Proposal. In due course, shareholders will receive detailed documentation from Tower outlining the proposed transaction and instructions for voting.

“The Tower board also confirms that the Fairfax Proposal does not impact Tower insurance policies and the rights of policy holders. All policies and rights will remain with Tower Insurance Limited (or relevant Pacific Islands subsidiaries) in the event of a change in ownership of Tower Limited.”