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Troubled Insurer Tower Group Spooks Investors

  +Follow June 30, 2014 9:06AM
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Tower Group, Tower Group stock, ACP buyoutA worrying announcement from Tower Group International (TWGP) sparked a minor sell off in early Monday trading action, as investors feared that any negative news could potentially jeopardize an acquisition that is set to save the beleaguered insurer from going completely under water.

The announcement in question stated that Tower Group had sent a request for confirmation that ACP Re still intended to buy them out at $2.50 a share, as the firm had earlier said they intended to do. However, ACP has a litany of opt-out clauses to fall back on lest they think Tower Group is not as solvent as they claimed.

This is not a wild claim concerning the Bermuda-based insurer. Tower Group has had a storied year, to say the least, losing more than 80 percent of its value following a laundry list of setbacks.

Earnings Report Delays and Massive Losses

The company’s troubles began with a delayed earnings report in the second quarter of 2013, with Tower Group hinting that loss reserves would be magnitudes more severe than originally anticipated. That earnings report was delayed again, and while the final release of the report did reveal losses were bad, but not as catastrophic as expected, the damage had already been done.

However, it wasn’t just the present and future investors had to take into account concerning the company. Tower Group had also previously been forced to revise its 2011 and 2012 fiscal year reports, showing that losses were wider in the past than previously reported.

Tower Group has at times showed signs of recovery. A considerable amount of losses accrued by the company stemmed from payouts associated with property coverage in areas hit by Hurricane Sandy. Although the losses from the disaster were severe, if an insurance company can recover from such the company from a resulting rise in premiums.

ACP’s offer to scoop up Tower Group sent shares back up, relatively speaking, although ACP was understandably cautious in the perusal of the insurer. Their offer of $2.50 for Tower Group was a reduction of a previous $3 a share offer. ACP also was able to secure an opt-out clause should Tower Group’s profile prove too risky.

In response to the Tower Group inquiry, ACP merely stated that the company “reserves all its rights under the Merger Agreement, with respect to the matters referenced in your letter or otherwise.” That is, that ACP hasn’t made up their mind yet, but following through on the buyout is entirely up to them.

Volatility in Near Future for TWGP

While Tower Group sits in limbo, awaiting a buyout and resulting cash injection that will shore up the massive capital shortfall, the company stock should continue to whipsaw. The current price point of $1.80 is entirely untenable, and splits the difference between the two ultimate outcomes of the ACP deal.

On one hand, if ACP does indeed commit fully to the buyout, shares of Tower Group will undoubtedly rise back to the $2.50 level, as shareholders of record will be guaranteed at least as much. On the other hand, if the deal falls through Tower Group will almost certainly fall even lower. Although shares are currently at their all-time low, Tower Group lacks a second serious offer for their company, and if the ACP deal falls through the threat of insolvency is very real.

No analyst has yet assigned a price target of zero, or otherwise called for Tower Group shares to become completely worthless.  However, with losses mounting, Tower Group would much rather find a buyer sooner rather than later.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for TWGP
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21 Sep 14 22:33:15
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18 Sep 14 11:45:00
Real-Time feed of company contracts, original agreements and executive updates from Tower Group (Pty) Ltd $TWGP http://t.co/mKtT8AOcsA
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18 Sep 14 09:39:09
$NETE Gained 551.93% In The Past 6 Weeks! Major News: http://t.co/h5N34SPJ6o $TWGP $ZOLT $KIOR
Georgetown Jack
18 Sep 14 09:28:56
After a lot of sleepless nights, intrepid $TWGP investors got their $2.50...
Daily Contracts
18 Sep 14 08:00:00
Real-Time feed of company contracts, original agreements and executive updates from Tower Group (Pty) Ltd $TWGP http://t.co/mKtT8AOcsA
ChartMill
18 Sep 14 06:47:03
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Stock Rocket
18 Sep 14 01:18:41
$NETE Gained 551.93% In The Past 6 Weeks! Major News: http://t.co/PU7GW934W5 $TWGP $ZOLT $KIOR
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17 Sep 14 21:11:53
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17 Sep 14 14:21:12
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17 Sep 14 13:29:23
Barrett Business Services, Inc. (BBSI) Copperfield Short Report http://t.co/WlEn2dWixD $BBSI $ACE $MIG $TWGP $GNW $TNET $NSP $EIG
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17 Sep 14 10:46:03
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Van Dinh
17 Sep 14 07:07:29
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lavina
17 Sep 14 05:10:52
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17 Sep 14 03:41:49
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androsForm
17 Sep 14 02:04:25
More market movers than usual for this hour| $AAPL -.16 $ADBE -2.93 $FB +.17 $GILD +.54 $GSK -.11 $TSLA +1.11 $TWGP +.26 $TWTR +.40 $X +2.46
Stockaholics
16 Sep 14 13:18:14
$BRNW Ran Up 145% So Far Today! Huge News: http://t.co/agBJ7Ngnzq $TWGP $ZOLT $KIOR
ChartMill
16 Sep 14 11:09:03
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Daily Contracts
16 Sep 14 09:58:01
Real-Time feed of company contracts, original agreements and executive updates from Tower Group (Pty) Ltd $TWGP http://t.co/mKtT8AOcsA
Stockaholics
15 Sep 14 21:39:54
Our SECRET Alert on $INOH Closed Up 60% For Platinum Members Today! Major News: https://t.co/HzD6J3YtmW $TWGP $ZOLT $KIOR
EuclideanSpace
15 Sep 14 14:54:50
$TWGP away from terminal anyone know if bonds were actually pd today and/or merger closed ... was cryptic press release way to pay bnds?
EuclideanSpace
15 Sep 14 14:50:24
@max02050 I've been away from desk whole day but can't tell if $TWGP is actually closed and don't understand the press release
Day Trade Alerts
15 Sep 14 14:04:45
After Hour Movers: $BDCV 8.20(54.72%) $MAGS 5.60(16.42%) $VICUF 10.59(13.51%) $WGA 1.39(12.10%) $TWGP... via http://t.co/VS8RO1bzXJ
stocktrackeralert
15 Sep 14 14:00:48
After Hour Movers: $BDCV 8.20(54.72%) $MAGS 5.60(16.42%) $VICUF 10.59(13.51%) $WGA 1.39(12.10%) $TWGP 2.49(11.66%)
ChartMill
15 Sep 14 13:35:03
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StockNews
15 Sep 14 12:07:09
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15 Sep 14 12:07:06
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15 Sep 14 12:07:04
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NASDAQ
15 Sep 14 12:07:03
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15 Sep 14 12:04:34
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15 Sep 14 12:04:10
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NASDAQ
15 Sep 14 12:04:08
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NASDAQ
15 Sep 14 12:04:06
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NASDAQ
15 Sep 14 12:04:05
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  +Follow June 30, 2014 9:06AM
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