Vero acquisition of Tower declined
26 Jul 2017
Competition watchdog the Commerce Commission declines Vero Insurance acquisition of Tower Insurance because it could have meant higher prices for customers and less cover.
A successful merger of the two companies would have brought together the second and third largest insurers for domestic house, contents, and private motor vehicle insurance in the country.
Vero is a subsidiary of Australian company Suncorp Group, while Tower is New Zealand based.
A Suncorp spokesman said the company was disappointed by the decision.
Suncorp New Zealand chief executive Paul Smeaton said he did not believe the proposed acquisition of Tower would substantially lessen competition in the New Zealand insurance market.
But Commerce Commission chairman Mark Berry said the commission was not satisfied the merger would not diminish competition substantially.
"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 smaller insurers did not replicate the "level of constraint" that Tower imposed.
"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 said.
Smeaton previously said the proposed merger would have created a business with gross written premiums of $1.6 billion and would "strengthen the firm's strategic position".
Suncorp New Zealand has joint venture partnerships to sell its products through AA Life and AA Insurance. Combined, Vero and AA Insurance control 25 per cent of New Zealand's insurance market. A merger with Tower would mean the company had a 30 per cent share of the market.
This move would have meant two Australian insurance giants, IAG, which has 46 per cent of the total market, and Suncorp, would cover 76 per cent of the insurance market.
Suncorp submitted a proposal to Tower's board to acquire the company for a total of $219.3 m, at $1.30 a share, the company announced in February.
This followed Canadian Fairfax Financial Holdings' offer to buy the company at $1.17 a share, valuing the company at less than Suncorp by more than $20m.
This submission came after Vero purchased a 11.14 per cent stake in the company's shares.
Vero later increased their holding to nearly 20 per cent and increased their offering to shareholders to $1.40 a share.
Tower said after the decision that it would work with Vero to assess the implications for the "Vero Scheme", the agreement for Vero to acquire all of Tower's ordinary shares that it does not already own.
Tower said it will be looking at the decision's impact on its business plans, including whether it will need to raise capital in the coming months.
A special meeting for shareholder approval that was due to be held in September has been cancelled.