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Mid-sized life insurance and funds management group Tower yesterday saw
almost $240 million or 43 per cent wiped off its market value yesterday as
investors offloaded the shares en masse in the wake of Friday's loss forecast.
``Fawlty" Tower and ``To the Tower!" were just a sample of the market's
reaction to Friday's announcement, while Merrill Lynch's analysts simply told
clients to ``avoid" investing in it.
Resuming trading after a two-day stop on trading at the end of last week,
Tower shares plunged $1.35 to $1.75, 2c off the day's low.
Merrill Lynch had been expecting annual net profit to be reported on December
5 of about $83 million but Tower said on Friday that it would record a loss of
at least $NZ30 million ($26.3 million) and no dividend was contemplated. This
was despite the upbeat roadshows Tower had conducted for brokers and investors
in the past two months.
The loss could yet be far worse because Tower is planning to revalue
downwards its Australian financial planning business, Bridges bought for $168
million in 2000.
Also Tower said it was not yet able to determine the effect of weak
sharemarkets on investment returns.
The share price plunge leaves Tower one of the biggest fund managers in NZ
but generating most of its business from Australia with a market value of just
$307 million.
According to some analysts, the only glimmer of hope for the share price is a
takeover, though the long list of problems in the business suggest few parties
would be willing to make a bid right now. Westpac is believed to have done some
due diligence on Tower in the past year but has instead bought BT and
Rothschild.
``It is clearly a very tough operating environment for life insurers and
wealth management companies at the moment, and Tower are not the only ones being
affected," JB Were & Son said in a note. ``Tower are at a disadvantage given
their lack of scale or compelling brand and relatively weak distribution."
Tower cited ``changes to market factors" for the revaluation now being
undertaken on Bridges. Another reason for the revaluation of Bridges is believed
to be demands by its planners for a greater cut of commissions.
Tower's acting chief executive, Keith Taylor, said the company's capital
position was still strong and he expected the company to return to normal levels
of profitability in 2003.
But the market remains to be convinced. Tower expects to announce a new
chief executive in the next month, though the task of finding a new boss may now
be even more difficult.
ABN Amro said Tower was being marginalised in a consolidating industry and
``thoughts of further acquisitions such as the Australian/NZ business of Royal &
Sun Alliance would now appear to be gone".
Meanwhile, reports from London suggest that Royal & Sun will now look to sell
all of its Australasian operations, including general insurance (only the
Norwich Union financial services arm was previously contemplated), after
abandoning plans for a #750 million ($2.1 billion) rights issue.
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