Farmers Rejects $4.5-Billion Offer by BAT : Hostile Bid ‘Inadequate’; Board Seeks Alternatives
Farmers Group said Thursday that its board rejected a $4.5-billion hostile takeover offer from BAT Industries of Britain and is searching for a way to stay independent, including such alternatives as a restructuring or leveraged buyout of the company.
Farmers’ board recommended that shareholders reject the $63-per-share bid, made a week ago, because “the offer is inadequate to the stockholders of Farmers from a financial point of view,” the Los Angeles company said.
Batus, the U.S. subsidiary of the British conglomerate, said it was “disappointed” by the rejection of its offer, which expires March 30 but could be extended.
In its effort to remain an independent company, Farmers has had discussions with a third party “to explore the feasibility of a leveraged buyout of the company,” Farmers said in a filing Thursday with the Securities and Exchange Commission. In a leveraged buyout, a group of investors that often includes management buys a company with borrowed funds, intending to repay the debt with future profits or by selling parts of the company.
Farmers said it also is considering a restructuring, recapitalization, stock repurchase, creation of a leveraged employee stock ownership plan, sale of stock to one or more third parties and payment of an extraordinary dividend to company stockholders.
“However,” Farmers stated in the filing, “the board of directors has made no decision concerning any such alternative transactions and intends to continue to review its various alternatives.” A spokeswoman for Farmers declined to elaborate on the filing.
The offer is the second made by Batus for Farmers, the nation’s third-largest auto and home insurer. The first offer, for $60 per share, was rejected Jan. 20.
“Batus has repeatedly invited Farmers to discuss the proposal, and we continue to hope that they will meet with us,” a spokesman for the Louisville, Ky.-based firm said. “Our offer of $63 a share in cash represents a premium of 47% over the $43 price at which Farmers shares closed on the day of our initial proposal.”
Analysts have estimated that Farmers stock is worth as much as $70 to $80 a share. Farmers stock closed at $60 per share Thursday in over-the-counter trading, down 75 cents.
Before it can buy a significant stake in Farmers, Batus must receive regulatory approval from several states, including California. Farmers said it expected that process would “take a substantial amount of time and that, therefore, there was no need for stockholders to act now” to tender their shares.
