Tower sells medical unit to Nib for $102m, says profit will beat estimates

The company plans to return the capital to shareholders.

Tower, the insurance and wealth management company, has agreed to sell Tower Medical Insurance to ASX-listed Nib Holdings for about $102 million and plans to return the capital to shareholders. The shares jumped 3.1%.

The decision to sell Tower Medical, which has a market share of about 13%, came after Tower reviewed all of its insurance businesses this year and concluded it would not achieve "the necessary scale of return in this business in the immediate future".

Tower managing director Rob Flannagan also says net profit in the year ended September 30 was in a range of $51 million to $56 million, exceeding the upper end of analyst estimates.

Nib says buying Tower Medical fits with its strategy of expanding in international markets. Tower Medical has annual premium revenue of about $140 million and reported net profit of $6.8 million in the second half.

The unit ranks second in New Zealand's health insurance market behind Southern Cross Healthcare with 60%.

"We've been looking at the New Zealand market for about three years now," managing director Mark Fitzgibbon told BusinessDesk. "We're a believer in big trends, world trends. There's more spending on healthcare and dismantling of international barriers."

He says the New Zealand market is like Australia's health insurance landscape early last decade – "one dominant player, no obvious competitive tension and the government knows budget constraints mean there must be more future private funding of healthcare".

"There is opportunity for a new player," he says. Nib brands will likely be rolled out in the New Zealand market early in the New Year.

The sale to Nib is subject to Overseas Investment Office approval and is expected to settle before December 31. Nib will fund the purchase through surplus capital and a $70 million senior debt facility.

It will not own hospitals or health clinics and expects to contract with doctors and private health providers including Southern Cross.

Tower shares rose 6 cents to $1.99 on the NZX. Nib last traded at $A1.81 on the ASX and has gained 21%  this year.


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