What next for Tower Limited (Australia) after share price plunges

Unfortunately for its shareholders, the Tower Limited (Australia) (ASX: TWR) share price has fallen to Earth with a bang today.

In morning trade the insurance company’s shares are down a massive 25% to 89.1 cents.

Why have its shares crashed?

This morning it was announced that the New Zealand Commerce Commission has declined the application of Vero Insurance New Zealand, a wholly owned subsidiary of Suncorp Group Ltd (ASX: SUN), to acquire Tower.

Vero had planned to acquire Tower for NZ$1.40 per share, outbidding Fairfax Financial Holdings Limited offer of NZ$1.17 per share.

Although the two parties are still awaiting for full details to be released by the Commerce Commission to fully understand the reasoning behind the decision, I feel regulators may have concerns that it will lessen competition in the New Zealand insurance market.

What’s next?

Both Suncorp and Tower plan to review the decision before commenting further.

However, Tower has warned shareholders that should the acquisition fall through it will have to consider the impact it will have on its business plans.

This includes whether it needs to conduct a capital raise to ensure the long-term sustainability of the business and accelerate its transformation.

Should you invest?

Whilst its shares may look a lot cheaper today, I would stay clear of Tower for the time being.

Especially with the prospect of a capital raising on the horizon potentially putting further pressure on its shares.

When the dust settles it may well be worth considering, but for now I would prefer to gain exposure to the insurance sector with either Suncorp or Freedom Insurance Group Ltd (ASX: FIG).

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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