Tower Group's share price has been rallying sharply as speculation mounts over what majority owner, Guinness Peat Group, will do with its 35 per cent stake in the insurance and financial services group.
The company, which is scheduled to report its annual result for the year to September 30 on Friday, has seen its shares rally by about 16 per cent from $1.26 just under a month ago, to $1.46 today. Over the same period, the NZX-50 index has dropped by 1.4 per cent.
GPG owns more than 20 per cent of Tower, so any sale would demand either a full takeover offer or an exemption from the Takeovers Panel.
Another issue for Tower is Christchurch-based insurance company, AMI, which has a $500 million financial guarantee from the Government to meet an expected shortfall in funds available to meet Christchurch earthquake claims. AMI has hired Goldman Sachs to conduct the capital raising or an outright sale of the business, and Tower is understood to be interested.
Rickey Ward, equities' manager at Tyndall Investment Management, said the market may well be speculating that Tower's result could turn out to be better than expected, or that a managed exit by GPG from Tower's share register is on the cards.
Early this month, German agricultural trading company BayWa launched a takeover bid for GPGs' majority-owned Turners and Growers at $1.85 a share. BayWa had reached an agreement to buy GPG's holding at that price, which will net GPG $137 million.
"I think it is people taking a view on GPG doing a transaction akin to the Turners and Growers one,'' Ward said. "GPG seems to be in the mode of realising assets at the moment and they seem to have made some ground on that front, so the speculation is that they may do a transaction in Tower.''
Tower dropped as low as $1.30 on talk that GPG would place their Tower stock to existing GPG shareholders, but rebounded when it appeared a Turners and Growers' style managed exit looked more likely.
"It looks like very unusual trading behaviour at the moment, on no news,'' Ward said. "There is a whole lot of uncertainty out there and people are second guessing,'' he said.
In September GPG sold its 19.4 per cent stake in Turners Auctions in an off-market transaction to investors, including Milford Asset Management, for an estimated $7m.
Tower shares were trading at around $2.00 just before the February 22 Christchurch earthquake, and fell away sharply in the months that followed as the extent of the damage became clearer.
In October, Tower confirmed the successful placement of its reinsurance programme for the 2011/12 financial year, and expected its group profits for the year ending September 30 to be within the analysts' current range of $22-28m.
