Tower Group International Ltd (NASDAQ: TWGP) is a Bermuda-based multinational insurance and reinsurance holding company. Its insurance subsidiaries offer personal, commercial and specialty insurance and reinsurance products. The company also runs some insurance subsidiaries in the United States, which collectively operate under the brand name Tower Group Companies. In the United States, Tower Group provides commercial insurance products to small to medium-sized businesses and personal insurance products to individuals through a specialized team of wholesale and retail agents.
New Lease on Life from the ACP Merger?
Following recent events with regard to TWGP's proposed merger with ACP, the company's shares shot up 32.06 percent to hit $2.24 a share. Currently the stock price looks to be settling slightly below the $2.50mark. This is because of an amendment to the agreement between TWGP and ACP that will see TWGP shareholders of record paid $2.50 after the takeover. The new takeover deal price of $2.50 a share presented by ACP Re is actually a downward revision from an earlier proposal of $3 a share they made back in January.
Nevertheless, the stock pop looks to be related to the second revision announced, which now quashes speculation about any termination fee TWGP would have paid had the deal failed to go through. The current agreement also restricts the deal to close by November 15, 2014 in a bid to avoid termination.
A turnaround for Tower Group will be tricky, but would have been even trickier on its own. Therefore, the merger is making perfect sense and this will not only pay off handsomely for the current shareholders, but also shape a brighter future for the company as an entity.
Tower Group was hit by claim payouts linked with Hurricane Sandy and the company started its precipitous fall soon after.
In addition, the company twice delayed Q2 2013 earnings report as a chain of accounting flaws (including a surprise $105 million in loss in reserves after an accounting revision of the past three years) made shares of Tower Group go down by more than 75 percent in a single three month period.
The merger with ACP Re has created an opportunity for TWGP shareholders to assess their positions in the company without much pressure on their backs. Initially, it would have been tough to bet on the company without any clear directive on the way forward. The revised terms almost guarantee that this time the deal will go through, thereby sparing TWGP shareholders possible miseries that would have resulted from hefty termination fees based on the initial agreement.
With the current U.S. housing recovery on course as, well as positive economic indicators, TWGP as a company has a good opportunity to reinvent itself. More importantly, the company's merger with ACP strengthens its going concern as a business and hence it would be easier for it now to do business with customers and partners.
The bottom line is that TWGP's initial fears are now being wiped out, with a growing series of positive sentiments from analysts.