The New Zealand Commerce Commission said today that it has “declined to grant clearance to Vero Insurance New Zealand Limited to acquire up to 100% of the shares in Tower Limited.”
Vero, a subsidiary of Suncorp, had looked set to complete its acquisition of Tower Insurance of New Zealand, after its much increased bid was accepted and Vero New Zealand entered into a Scheme Implementation Agreement (SIA) with Tower to complete the M&A.
Suncorp was competing with Prem Watsa’s Fairfax Financial, which had made an all cash offer for Tower of $1.17 per share in February, valuing the insurer at $197 million, which was a 48% premium to the Tower share price at the time.
Suncorp responded with a higher bid and by acquiring a chunk of Tower shares, which it then followed up with an offer designed to seal the deal, as its subsidiary Vero NZ revised the offer to ensure Tower shareholders would receive cash consideration of NZ$1.40 for each share held.
But that hasn’t been enough it seems, as the regulator has now stepped in citing competition concerns.
“The merger proposed bringing together the second and third largest insurers for domestic house, contents and private motor vehicle insurance in New Zealand leaving only two substantial competitors in the market post-merger,” the New Zealand Commerce Commission explained.
Chairman of the Commission Dr Mark Berry said that the regulator feared the deal could reduce competition in the personal insurance market.
“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. 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 explained.
“Relevant to this competitive landscape, Tower is making concerted efforts to reposition itself in the market and improve its performance. 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.”
Will Fairfax come back and repeat its original offer?
Foreign acquirers must be a little wary after Tower initially entered into an implementation agreement with Fairfax, but then as soon as a higher bid came along switched its focus to Suncorp.
It will likely come down to how urgently Tower needs to secure its future, as Fairfax could maybe now secure the insurer at its original price if the company needs to progress things rapidly. Of course Fairfax has just acquired Allied World, so is busy with an M&A in progress and as a result its focus may now be elsewhere.