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Shareholders have given Insurance Australia Group an embarrassing
knock-back only a fraction of its 1.1 million retail investors are backing its
$380 million share purchase plan to help fund the $1.86 billion acquisition of
CGU/NZI.
IAG revealed yesterday that retail investors had subscribed for just $93
million or 24 per cent of the offer, leaving UBS Warburg and Deutsche Bank
holding some stock.
This response equates to about 50,000 shareholders or less than 5 per cent of
the shareholder base.
UBS and Deutsche have sub-underwriting arrangements in place that mean that
institutional investors will take a ``substantive portion" of the stock, but it
could leave the company with a stock overhang that might depress the share
price.
IAG fell 4c to $2.38. UBS was the largest net buyer with 5 million shares, as
it stepped in to partly support the stock on its own book.
But IAG managing director Michael Hawker denied there would be an overhang,
saying institutions which sub-underwrote the offer were ``no dummies" and were
prepared to take the stock.
Many have also taken shares in the $500 million institutional component of
the offer.
Mr Hawker denied the general insurance problems of recent years and
controversy at the NRMA had affected the response from investors, though he
conceded it was difficult to promote the offer to IAG shareholders at this time.
``I would have hoped we would have got more because we think [the CGU
acquisition is] a great transaction but it's obviously not a great time for
people," he said.
``It's always difficult to work out how many we were going to get. Many have
received shares through demutualisation and are the only shares they have ever
owned."
The result illustrates investors' reluctance to back such big offerings close
to Christmas, particularly since the price at demutualisation in 2000 was
higher at $2.75.
The poor reception also spells difficulties for other parties wishing to
raise money, including Royal & SunAlliance, which hopes to float its Australian
operations next year.
Some say this is just a ploy to lure a trade buyer, though the London-based
Royal & Sun has struggled to find a buyer and the likely candidates have
diminished to either Suncorp or QBE.
IAG will accept late applications for the shareholder purchase plan until
Tuesday.
The final price will be the lower of $2.55 and a 5 per cent discount to the
market price in the next 10 days of trading. The price is expected to be
announced on December 9.
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