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The Sydney Morning Herald

Tower totters on Royal Sun talk

Author: Edited by Mark Todd
Date: 13/09/2002
Words: 931
          Publication: Sydney Morning Herald
Section: Business
Page: 20
For some odd reason, nobody's too keen on buying a life insurance company.

The mysterious slump in life insurance group Tower's share price can probably be explained by its attempts to buy London-listed Royal & Sun Alliance's Australian and NZ financial services operations. This is a big bite for Tower possibly up to $1 billion and might require a capital raising.

Tower is also suffering as interest in the stock wanes with investors having noticed how the big banks have put themselves into strategically strong positions in wealth management relative to the thinning ranks of mid-size players.

Tower is clearing the decks by selling non-core assets and changing management, so a big buy would not surprise.

It will be interesting to see if overnight developments have any bearing on RSA's deliberations on whether to exit the Australian financial services business. On the face of it, there's no compelling rationale to hold the assets.

RSA's chief executive, Bob Mendelsohn, left yesterday after being under intense pressure to sell assets to offset a balance sheet weakened by September 11, asbestos liabilities and the retreat in the sharemarket.

Legal & General beat RSA to the punch this week with a $2 billion capital raising but RSA may still do likewise.

That Tower now seems the most likely buyer of the Berkeley Square company's Australasian interests shows what a difficult sale it has been. There was little interest in the assets and some potential buyers such as Westpac have bought elsewhere.

Still, Tower managed a nice rebound, closing up 17c at $3.30.

Novelty drinks

All the hoopla Coca-Cola Amatil will make over the next few weeks about Vanilla Coke won't ever equate to the impact the new drink will have on the company's bottom line.

But Vanilla Coke, a ``unique new sensation", is nonetheless important to the company's efforts to squeeze as much growth as possible from the Australian market.

Over the past three years, sales of carbonated soft drinks have risen about 1 per cent, a pretty miserly rate of growth. Amatil itself has done a bit better than that, boosting volumes on average by up to 2 per cent.

New managing director Terry Davis recognises that while original Coke, Diet Coke, Fanta, and Sprite will remain the mainstays of the portfolio, there is room to leverage these brands to achieve growth at the margins. Hence creations such as Diet Coke with Lemon and the Fanta Flavours line.

Essentially, new products equate to incremental sales growth. Vanilla Coke hits the shelves from early next month in this country, while New Zealand will enjoy ``the refreshing taste of Coca-Cola with a hint of vanilla" from next week.

Shares in Amatil barely moved in response, down 3c to $6.12. Analysts generally shrugged off any damage to earnings from an extension of the proposed levy on sugar sales at the retail level to wholesale sales.

Amatil is one of the country's biggest consumers of sugar. But with sugar prices down 30 per cent in the past year, a 10 per cent levy won't hurt.

Animal drug blitz

This column hasn't looked in on biotech Chemeq for some time but, given the spectacular rise in the share price, it will have to do so more often.

Chemeq shares yesterday hit an all-time high of $3.35, up from 50c when the stock was chronicled in Xchange in September last year.

It gets even better for shareholders who stayed with the company all the way from its original public offer in August 1999 when it raised $3.5 million from the issue of shares at 25c apiece.

When it floated, all of Chemeq was worth $14 million. It now has a market capitalisation of $235 million. This follows trials of its polymeric antimicrobial veterinary drug, an antibiotic for animals.

So far, germs in the animals tested haven't shown signs of developing a resistance to the drug, as they have to alternatives. The resistance develops when animals are pumped full of antibiotics to help them put on weight so they're nice and plump for the dinner table.

These latest tests found that Chemeq's drug, when used on chickens, led to greater weight gains than those promoted by other antibiotics. Not only that, none of the Chemeq chooks dropped dead as some did in the other test groups.

Directors have elected to take part of their fees in the form of Chemeq shares. The stock was issued at $2.55 at the start of July, putting the directors well ahead already.

Same old story

Anaconda Nickel continues trying to convince shareholders that its debt restructuring plan is close to winning the support of a majority of the company's US bondholders.

But investors seem to have cottoned on that Wednesday's announcement was effectively the same thing the company said a month ago. It probably helps explain yesterday's 8 per cent fall in Anaconda's share price to 32c.

Anaconda's chief executive, Peter Johnston, has said the company hoped to secure an agreement with the bondholders within the next three weeks.

Nothing has changed from the last statement when Anaconda said that bondholders representing 50 per cent of the company's more than $US420 million ($760 million) secured debt had agreed to release the miner from its obligations.

The only new development is that the company is offering to buy back its secured debt for 25.6c in the dollar.

Anaconda needs the support of bondholders representing 75 per cent of its total debt.

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