Wait for Batus to Raise Offer, Farmers Advises Shareholders
Farmers Group told its shareholders Wednesday that by hanging tough they may extract “a significantly higher price” from the British conglomerate seeking to acquire the company for $63 a share.
It was the first publicly disclosed indication that the Los Angeles insurance holding company might consider giving up its independence.
In a proxy statement to shareholders, Farmers--as expected--urged rejection of a resolution offered by Batus Inc., the U.S. subsidiary of BAT Industries, that Farmers’ board of directors open negotiations on the acquisition offer. Approval of the resolution, though it is non-binding, would benefit only Batus, Farmers said. Moreover, approval “could have the effect of unduly pressuring the board” to negotiate at an inadequate price or otherwise act “contrary to the best interests of the stockholders,” the proxy stated.
On the other hand, the company said, rejection “would strengthen the board’s position . . . and may force Batus to offer a significantly higher price if it intends to pursue the acquisition of the company.”
One immediate effect of the revelation was to send Farmers’ common stock spurting upward $1.25 a share to close at $61.50 in heavy over-the-counter trading of 1.6 million shares.
More than 63% of its shares are held by nearly 300 institutions, including banks, savings and loans, pension funds and other insurers--not to mention investment bankers speculating on a future increase in the price of stock.
“What the market is telling us is (these investors) believe there is going to be a higher price,” said Gerald S. Haims, who follows the insurance industry for Seidler Amdec Securities in Los Angeles.
Farmers’ apparent receptivity to a higher bid by Batus “does raise the temperature of the water one or more degrees,” said Herbert Goodfriend, an analyst with Prudential-Bache Securities. He viewed the statement as aimed at strengthening management’s negotiating position, not to mention its job security.
Batus has said several times that it would maintain Farmers’ management if it took over the company.
‘Guided by Actions’
Wilson W. Wyatt, a spokesman for Batus at the firm’s headquarters in Louisville, Ky., said he saw no change in Farmers’ position. “We can only be guided by actions,” Wyatt said, “and the actions have been that the company has refused to meet with us, despite our requests to do so.”
In its statement, Farmers said BAT Industries first expressed an interest in acquiring the company late last September and first proposed negotiations in a letter on Oct. 21. Farmers retained First Boston Corp. as its financial adviser, later adding Morgan Stanley & Co., and said both termed the $63-a-share, or $4.5-billion, cash offer “inadequate.” (Before launching that unwelcomed offer on March 3, Batus had proposed paying $60 a share.)
$70 a Share
Farmers’ board, the statement maintains, “is fully aware of its legal obligations to exercise its best judgment concerning the BAT offer or any further proposal.”
“My contention has been that (Farmers) management really has a relatively minor stake,” analyst Haims said. “The sway of power is really in the hands of the institutions. From a speculator or arbitrager standpoint, you’ve got to be looking at higher levels” for Farmers’ stock.
Haims noted that some analysts have previously valued Farmers’ stock at about $70 a share, but he said Batus’ present offer already is 2 1/2 times the net worth of the company on its books.
“Here you’re getting into qualitative analysis and away from quantitative analysis,” he said. “What you’re saying is that there’s value added because of the unique nature of the company.”
