ComCom blocks Tower’s sale to Suncorp

The Commerce Commission has declined the proposed acquisition of insurer Tower by ASX-listed Suncorp, saying it would harm competition in home and car insurance.

Suncorp had agreed a deal to buy Tower for $1.40 a share, valuing the New Zealand insurer at $236 million.

The agreement replaced Tower’s previous agreement to its acquisition by Canada-based Fairfax Financial Holding for $1.17 a share.

In a statement, the commission said the transaction would combine the second and third largest insurers in domestic house, contents and car insurance, leaving only two substantial competitors in the 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,” commission chairman Mark Berry said.

“While there are other smaller competitors in personal insurance, we do not consider they replicate the level of constraint that Tower imposes. Without the competition 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.”

The competition regulator will release its full reasons for the decision in the next week.

In a statement to the NZX, Tower said it would await the full decision but a proposed shareholder vote on the deal in September would not now take place.

“As previously indicated, the Tower board will look to consider the impact on its business plans, including whether it needs to conduct a capital raise in the coming months to ensure the long-term sustainability and accelerate the transformation of the underlying Tower business,” it said.

Suncorp released a statement to the ASX saying it was disappointed in the decision. Its New Zealand chief executive Paul Smeaton said he did not believe the deal would substantially reduce competition and the company would review the decision before commenting further.

In New Zealand Suncorp operates the Vero brand and has an interest in the AA Insurance brand through a joint venture with the Automobile Association.