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Tower ‘can survive’ without Vero deal

New Zealand’s Commerce Commission has released the detailed reasoning for its decision to block Vero’s acquisition of Tower, saying there are other viable options for the target group.

As previously reported by insuranceNEWS.com.au, the commission has highlighted the reduced competition the proposed merger would create, which “would likely result in unilateral effects, enabling both Vero and IAG to raise prices for [home and motor] insurance products and/or reduce the quality of their offerings”.

“We also consider that there is a real chance the merger would give rise to co-ordinated effects, in particular by making it easier for the merged entity and IAG to engage in parallel accommodating conduct,” the commission says.

Some commentators believe Tower’s future is bleak without the Vero deal, but the commission says there is “a real chance” Tower will be acquired by another third party.

It suggests Tower shareholders “would be open to considering offers from third-party buyers at or around the price originally offered by Fairfax”, and that Vero would sell its current 19.99% shareholding.

The commission also believes Tower can continue to offer significant competition as a stand-alone entity. It says despite recent performance having been “relatively muted”, Tower is seeking to reposition its business and improvements have been noted.

It says comparisons between the current proposal and IAG’s purchase of Lumley, which it approved in 2014, are not valid.

“The context of the current application is materially different to our earlier decisions.

“The proposed merger would involve the removal of Tower as a significant third competitor, resulting in a reduction of significant competitors in [home and motor] markets from three to two, with a tail of smaller competitors with limited competitive significance.

“In contrast, post-merger in IAG-Lumley, three significant competitors remained.”

Tower and Vero are assessing the commission’s reasoning and “considering next steps”.

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