Shares of Tower Group International (TWGP) skyrocketed in early trading action as a result of an amended agreement that will see shareholder of record paid $2.50 a share in a proposed takeover bid from insurance reinvestment group ACP Re, Ltd.
The new buyout price of $2.50 a share offered by ACP is actually a reduction from an earlier proposal of $3 a share they made for the Bermuda-based property and casualty insurer back in January.
However, the stock pop seems to be related to the second amendment announced that eliminates any termination fee Tower would have to pay if the deal falls through. The closeout date for the takeover must be completed by November 15, 2014 or it will be terminated.
Shareholders seemed to be betting that with the elimination of any fees on Tower’s part, the company can now focus on turning the company around while still retaining a backup in the form of the ACP offer. Whether they can turn it around or take the offer, either way, investors now have a little breathing room.
A turnaround for Tower Group will be difficult, but could be highly lucrative. Tower Group was first hammered by claim payouts associated with Hurricane Sandy, and began their precipitous fall soon thereafter. A monstrously bad, twice-delayed Q2 2013 earnings report, followed by a series of accounting mishaps (including at one point a surprise $105 million in loss reserves after an accounting revision of the previous three years), sent shares of Tower Group down more than 75 percent in a single three-month period.
There was always hope for Tower Group, since a property insurer than can survive a battering can often come out that much stringer, as disasters also allow a company to increase premiums. This is partly why Tower Group was included in the Equitiers.com Turnaround Stock Portfolio last year.
However, that turnaround had stalled out, making the bid from ACP in January so welcome. And while shares have languished during the year, and that turnaround has yet to materialize, Tower Group has bought themselves time, and investors think they could still repair the damages.
By 1:30 EST shares of Tower Group had shot up 32.06 percent to hit $2.24 a share. The trading price appears to be remaining under the $2.50 buyout price, as investors are apparently hedging slightly in the event the deal with ACP falls through. Or, they do fail to turn it around, and eventually get washed away by the market.
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