New Zealand regulator rejects Tower takeover by Suncorp

New Zealand's Commerce Commission has declined to grant clearance to Suncorp subsidiary Vero Insurance to acquire up to 100 percent of the shares in general insurer Tower.

In June, Suncorp had announced that the companies have entered into a Scheme Implementation Agreement wherein Vero will acquire all of Tower’s ordinary shares (at NZ$1.40 per share) it does not currently own by way of a Scheme of Arrangement, beating Fairfax Financial's all-cash offer.

In February, Canada-based property and casualty re/insurer Fairfax had agreed to acquire 100 percent of Tower shares at NZ$1.17 ($0.84) per share for an aggregate acquisition cost of NZ$197 million ($144 million).

Tower is one of the largest insurers in New Zealand and the Pacific Islands.

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, according to the statement.

The chairman of the Commerce Commission, Mark Berry, stated that the Commission was not satisfied that the merger would not have the effect of substantially lessening 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," Berry said.

"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."

"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."

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