Tower bid first move in bigger game for Dai-ichi

DAI-ICHI Life Insurance is eyeing its friendly $1.76 billion move on Tower Australia as a beachhead for further expansion into the Asian life insurance market. The takeover has turned out to be a goldmine for Tower's chief executive, Jim Minto, who is on track to make $34 million from the deal. The payment forms the rump of $70 million Dai-ichi has promised to buy the outstanding stock options held by six of Tower's senior management. Dai-ichi has promised to retain Tower's Australian board and management, including Mr Minto. It is expected to pursue more wealth management acquisitions. Tower shares surged to a record high after its independent directors unanimously recommended the takeover bid by Dai-ichi, its 29 per cent shareholder, subject to the offer being deemed fair and reasonable by an independent expert. The Tower takeover follows a string of wealth management acquisitions, including AMP's friendly $13.3 billion move on its rival AXA Asia Pacific. Analysts warned that a reinvigorated Tower could compete with major players like National Australia Bank and AMP as they battle for dominance in the life insurance market. Tower is Australia's fifth-biggest life insurer, measured on sales. Dai-ichi's offer of $4 cash for each Tower share represents a 46 per cent premium, based on Tower's average trading price of the past month. Tower closed at $3.87 yesterday, up 42 per cent. The offer amounts to 1.4 times Tower's embedded value and 19.1 times forward earnings, a slight premium to comparable transactions, including NAB's buyout of Aviva. Tower's shares have been under pressure in recent months amid uncertainty about how much capital would need to be pumped into the business following new regulations mostly designed to strengthen the financial system. "In this regard, Dai-ichi's approach looks to be well-timed," an insurance analyst with Goldman Sachs, Ryan Fisher, said. Talks between Tower and Dai-ichi have been taking place since mid-December, with much of the negotiations coming down to pricing. A scheme implementation agreement was signed late Tuesday night. Tower's chairman, Rob Thomas, said the company's independent directors considered the offer represented a "compelling premium and a highly attractive" outcome for shareholders. The deal is subject to Australian and Japanese regulatory approvals. A Tower shareholders' meeting to vote on the offer is likely to be held in the second quarter of the new year.