Australia’s Tower accepts Dai-ichi’s $1.2 billion offer

By Narayanan Somasundaram

SYDNEY (BestGrowthStock) – Tower Australia (TAL.AX: ), the country’s fifth biggest life insurer, agreed to a $1.2 billion takeover offer from top shareholder Dai-ichi (8750.T: ), adding to a string of deals in Australian wealth management and insurance, and sending its shares up 40 percent.

Tower, the biggest independent insurer in a market dominated by the top banks and AMP (AMP.AX: ), said its directors unanimously recommend the approach at A$4.00 per share or at a 47 percent premium to the stock’s last close.

With Tower taken, Australia’s life insurance sector grows increasingly concentrated, much like the nation’s bank sector, but further consolidation is possible as analysts said some of the other key players — units of AIA Group (1299.HK: ), Allianz (ALVG.DE: ) and Zurich Financial Services (ZURN.VX: ) — could still exit.

“The valuation is pretty attractive,” said Mark Daniels, head of equities at Aberdeen Asset Management, which owns Tower shares.

“The timing was a bit surprising, though on the longer-term one would have expected the deal given Dai-ichi’s stake in Tower rising Japanese interest in overseas firms for growth.”

Dai-ichi, Japan’s No.2 life insurer, already owns 29 percent of Tower and is eyeing the deal to expand away from a stagnant home market.

Unlike Singapore Exchange’s (SGXL.SI: ) $7.8 billion deal for Australian stock market operator ASX (ASX.AX: ), this deal is unlikely to generate political opposition as Tower is a relatively small player in a competitive industry and not a quasi-monopoly.

SGX is 23 percent owned by the Financial Sector Development Fund, which is controlled by Singapore’s central bank.

Australia wealth and life insurance by virtue of being one of the few growing segments of the country’s financial services sector is attracting a number of deals.

The wealth management market, at $1.2 trillion, is expected to grow more than 12 percent per year for the next five years while life insurance rings in revenue of A$12 billion a year.

Tower expects to put the deal, which valued it at 19.1 times 2010 underlying earnings compared with 17.1 times for AMP’s $13 billion takeover of AXA Asia Pacific (AXA.AX: ), for a shareholder vote in the second quarter of 2011.

In addition to AMP’s deal for AXA Asia, top lender National Australia Bank (NAB.AX: ) bought Aviva’s (AV.L: ) Australian wealth unit late last year while Australia and New Zealand Banking Group (ANZ.AX: ) bought out its wealth management joint venture partner ING (ING.AS: ).

“Dai-ichi is a major life company and there is a strong natural fit,” Tower Chief Executive Jim Minto said in a statement. “Tower will have the benefit of the backing of the top ten life insurers in the world based on revenue.”

This is the first major purchase by Dai-ichi since its $11 billion stock market debut in April.

By 0035 GMT, Tower shares were up 41.4 percent at A$3.86 in a flat Australian market.

Tower is being advised by Greenhill Caliburn while Nomura is advising Dai-ichi.

(Reporting by Narayanan Somasundaram; Editing by Balazs Koranyi)

Australia’s Tower accepts Dai-ichi’s $1.2 billion offer