UPDATE: Tower shares driven low after Vero merger rejection
By Pattrick Smellie
July 26 (BusinessDesk) - (updates for sharemarket at NZX open today)
Shares in general insurer Tower took a pounding at the opening of trading on the NZX this morning, falling 29 percent to 90 cents after the Commerce Commission rejected a merger application at $1.40 a share from rival insurer Vero.
Owned by Brisbane-based Suncorp, Vero sought permission to acquire Tower's operations after winning a bidding war with Canada's Fairfax Financial Holdings in a deal that valued Tower at $236 million. The Vero bid trumped FFH's offer at $1.17 a share and this morning's share price is the lowest since February, when the FFH bid first emerged.
“The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets," said commission chair Mark Berry. "While there are other smaller competitors in personal insurance, we do not consider that they replicate the level of constraint that Tower imposes.
"Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage,” Berry said. "There is also a real chance that Tower would be purchased by a third party further enhancing Tower’s significance as an independent competitor in the market.”
IAG, also Australian-owned, offers general insurance through its State and AMI brands in New Zealand.
In a statement, ASX-listed Suncorp said it was disappointed by the application's rejection, which the company would review before commenting further.