Investment Groups Duking it Out for Tower Group

Jacob Harper  |

The story of Bermuda-based insurance company Tower Group International (TWGP) over the last eight months has been defined by a seemingly endless series of twists and turns that has sent the company’s stock zipping up and down with reckless abandon. That story took another turn on May 12, after yet another white knight appeared on the horizon looking to save this troubled company from the clutches of bankruptcy.

A quick recap of Tower Group’s myriad woes: a massive loss incurred as a result of Hurricane Sandy claims that hammered the company. In turn, Tower Group was forced to delay their second quarter 2013 earnings report twice. This led to the discovery of accounting discrepancies in the company’s past, resulting in a negative restatement of past earnings. As a result of this and its other myriad setbacks, the company shed 80 percent of its value.

This made investors understandably unhappy, and Tower Group went looking for a buyer. When one was found in February, things finally started to look up…sort of. The deal with ACP Re came with strings attached, and valued the company at a fraction of what they had been valued less than a year prior at just $2.50 a share. Them’s the breaks.

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But Tower Group does possess the potential to turn it around, as insurers that get hit hard can then turn up the premiums, and thus, potentially, the profits. First, ACP revised the deal to not charge Tower Group an opt-out fee, essentially offering insurance to the insurer, causing shares to skyrocket.

ACP seemed bullish on the promise of a real Tower turnaround. This promise attracted a second buyer to Tower Group, Euroins Insurance Group. And they’re offering even more than ACP.

Both groups vying for Tower Group’s hand certainly seem to think they’re buying low on this one. And both seem to think they can fix this battered insurer up. Euroins said in statement following their $3.75 a share offer that it "intends and is ready to recapitalize the company to the industry norms and standards and to be able to complete such an agreement within weeks from the beginning of the due diligence period."

Tower Group was previously included in the Turnaround Stock Portfolio. For what it’s worth, it was far and away the worst performer in the fund.

News of Tower Group fielding a competing bid for the company sent shares up slightly, as investors avoided getting too exuberant about a company that has burned stockholders so many times before. Shares briefly touched $3 before retreating almost immediately, and by the edn of the day’s trading action had gained an even 4 percent to hit $2.34.

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