The New Zealand Commerce Commission has declined Vero’s application to acquire Tower.
The merger, would leave “only two substantial competitors in the market post-merger,” the commission said as the move would combine the second and third largest insurers for domestic home, contents and private motor insurance in the country.
“The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets,” Dr Mark Berry, chairman of the Commerce Commission, said.
“While there are other smaller competitors in personal insurance, we do not consider that they replicate the level of constraint that Tower imposes.”
Dr Berry noted that, without the competition of Tower, there is a “real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality”.
Suncorp Group said that it was “disappointed” with the decision as Suncorp New Zealand CEO, Paul Smeaton, said that he did not believe the proposed acquisition of Tower would substantially lessen competition in the New Zealand insurance market.
Suncorp Group said that they would review the decision and assess options.
In a statement, Tower noted that the board will “consider the impact on its business plans,” which could include the need to conduct a capital raise in the coming months to ensure the long-term sustainability of the business.
“Tower is awaiting the release of the Commerce Commission’s decision to fully understand the reasoning,” the statement said.
“Tower will work with Vero to assess the implications for the Vero scheme, but it will mean a shareholder vote will now no longer occur in early September.”
Tower and Suncorp signed a scheme implementation agreement last month which saw the NZ-insurer valued at $236m ($1.40 per share).
Suncorp fought off competition from Canadian financial services giant Fairfax for the business.
Dr Berry noted that Tower is making efforts to reposition itself within the market and improve its performance.
“There is also a real chance that Tower would be purchased by a third party further enhancing Tower’s significance as an independent competitor in the market,” Dr Berry continued.