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Troubled Insurer Tower Group Spooks Investors

  +Follow June 30, 2014 9:06AM
Tickers Mentioned:

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
20 Aug 14 21:05:28
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20 Aug 14 11:46:33
@max02050 @LongShortTrader Brilliant: $TWGP into even MORE aggressive hands $AFSI $NGHC in Hall of Shame http://t.co/YuJwKeYBGB
20 Aug 14 11:30:25
RT @WallStJesus: $TWGP seeing unusual opening put activity in Oct $2 strike, 12,500+ traded
Mitchell Warren
20 Aug 14 10:51:24
Smart Money Report for unusual options activity http://t.co/2PnVKht2NM $CMLP $EXXI $FCS $FIVE $TWGP
20 Aug 14 08:58:41
"@WallStJesus: $TWGP seeing unusual opening put activity in Oct $2 strike, 12,500+ traded" #bto @ .40
Business Headlines
20 Aug 14 08:51:17
$TWGP: News Review: Tower Group International, Ltd. (TWGP), Advanced ... http://t.co/XW7Oh5dWVF http://t.co/TWQgj1woN5
20 Aug 14 08:48:09
$TWGP seeing unusual opening put activity in Oct $2 strike, 12,500+ traded
Open Outcrier
20 Aug 14 08:46:38
$TWGP Oct 2 puts bought 12k times for .30
Melvin Berry
20 Aug 14 08:45:02
RT @insurance_day: $TWGP: Tower Group given 60 days to regain compliance with @NASDAQ http://t.co/NYpsx6cEN4
Daily Contracts
20 Aug 14 08:36:01
Real-Time feed of company contracts, original agreements and executive updates from Tower Group (Pty) Ltd $TWGP http://t.co/mKtT8Ax9qA
Insurance Day
20 Aug 14 08:03:34
$TWGP: Tower Group given 60 days to regain compliance with @NASDAQ http://t.co/NYpsx6cEN4
20 Aug 14 08:00:40
MM SENDING $TWGP l5% lower (spike) to hedge 8k contracts put long option Trade. Noticeable! BE 1.75 by Oct 2014. Acting on this
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Bearish MACD Crossovers 2/2 $RDEN $SBAC $SSRI $SWC $SYMC $TWGP $VIPS $WAGE $WLT $XNET http://t.co/zUOJdAZbaz
Charts 123
20 Aug 14 03:52:03
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19 Aug 14 18:51:19
$TWGP: Tower Group International Ltd. (TWGP) Reports The Nasdaq Listing ... http://t.co/K430oUqht4 http://t.co/UUbMNpz3za
Stock Market Monitor
19 Aug 14 17:51:16
$TWGP: Why Tower Group (TWGP) Stock Is Falling Today http://t.co/g0ZgKiuZSk http://t.co/ymaQY3Lt32
Market Headlines
19 Aug 14 16:51:18
$TWGP: Tower Group: Why is it Down to Sell? http://t.co/m9v0nrPHVj http://t.co/HhUeKKXZAv
19 Aug 14 16:12:18
$TWGP: Tower Group receives Nasdaq notification regarding listing requirements due to not yet filed Form 10-Q http://t.co/PU50iP6VzX
19 Aug 14 14:16:22
$TWGP New SEC Document(s) for Tower Group International, Ltd. From our Stock News Alerts App
19 Aug 14 14:05:04
Tower : Receives Nasdaq Notice Regarding Listing Requirements http://t.co/hyBD11wwF2 $TWGP
19 Aug 14 14:04:34
$TWGP - Current Report Filing (8-k) http://t.co/l9p5vXBjCs
19 Aug 14 14:04:31
$TWGP - Current Report Filing (8-k) http://t.co/Kpt99jxcDL
VisualStock Resource
19 Aug 14 14:04:26
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BV Financials
19 Aug 14 14:04:19
$TWGP Tower Group International, Ltd files Form 8-K (Events or Changes Between Quarterly Reports) SEC .. http://t.co/syZLQmXC1e
19 Aug 14 14:01:54
$TWGP - Tower Group International Receives Nasdaq Notice Regarding Listing Requirements http://t.co/es1TFmaRmT
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19 Aug 14 14:01:22
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19 Aug 14 14:00:27
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18 Aug 14 07:56:00
Real-Time feed of company contracts, original agreements and executive updates from Tower Group (Pty) Ltd $TWGP http://t.co/mKtT8Ax9qA
17 Aug 14 19:22:01
"That’s an absurd question. No one rational would seek to add assets after the annuity is struck." $AFSI $TWGP
15 Aug 14 05:38:04
$TWGP SC 13G Filed By: Mmcap International Inc. Spc, Subject: Tower Group International, Ltd. http://t.co/WhjkKLc6EV
Biz Headlines
14 Aug 14 15:51:17
$TWGP: TOWER GROUP INTERNATIONAL, LTD. Financials http://t.co/wXgNjZDPTk http://t.co/iXc6FD8CQ6
14 Aug 14 15:25:16
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$TWGP - Statement of Ownership (sc 13g) http://t.co/JC8sE6lapA
14 Aug 14 14:20:57
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VisualStock Resource
14 Aug 14 14:20:47
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The Fly
14 Aug 14 14:12:50
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14 Aug 14 13:51:19
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Daily Contracts
14 Aug 14 12:07:00
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14 Aug 14 09:46:04
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  +Follow June 30, 2014 9:06AM



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