Farmers Stock Plunges in Wake of Regulator’s Opposition to BAT Bid
Farmers Group stock plummeted $5.25 a share in extremely heavy trading Monday, trimming $360 million from the insurer’s market value in the wake of Friday afternoon’s surprise decision by California Insurance Commissioner Roxani M. Gillespie to disapprove a hostile takeover bid from Batus Inc.
By the end of Monday’s trading, 2.29 million of Farmers’ 69 million outstanding shares had changed hands, making the Los Angeles company’s stock the most active in the over-the-counter market. The shares closed at $56.75, well below Batus’ $63-a-share bid, as investors seemed to disbelieve Batus’ claims that Gillespie’s decision would be quickly overturned in court.
Gillespie accepted Farmers’ so-called Robin Hood defense in ruling that Batus’ parent, London-based BAT Industries, was ineligible to own a California insurer because more than 10% of its stock is held by out-of-state and foreign governmental entities. These entities include various British town councils and the pension funds of more than half a dozen British state industries.
The defense takes its lighthearted name from the Nottingham Town Council’s ownership of 1.45 million of BAT’s 1.5 billion outstanding shares, said Roger L. McNitt, an attorney in San Diego for Barger & Wolen, which is representing Farmers. The sheriff of Nottingham was the arch-nemesis of Robin Hood, a hero of British folklore.
Takeover speculators, also known as arbitragers, disagreed Monday on whether individuals were selling their stakes in Farmers. “It’s all arbs selling . . . 1.8 million shares wouldn’t be just individuals,” said one arbitrager about two hours before the close of trading. But the speculator, whose firm holds a large stake in Farmers, said he had neither bought nor sold the insurer’s shares Monday.
Expects Suitor to Win
Arbitragers with two other Wall Street firms holding large blocks of Farmers stock disagreed. “It’s basically uninformed individual shareholders who have read the news and panicked . . . (or) institutions who don’t know what’s going on,” said a speculator who was buying more Farmers shares Monday in the belief that Batus would overturn Gillespie’s decision quickly.
“We’re holding. We’re going on advice of counsel; BAT will win in court,” another arbitrager said.
But some questions remain about whether Batus will prevail in court--and, just as important, how long a final legal verdict could take.
“We’re hopeful that it will be several weeks to a couple of months,” said James R. Woods, an attorney in San Francisco with LeBoeuf, Lamb, Leiby & MacRae, which represents Batus.
Farmers’ lawyer McNitt disagreed, saying a final decision could take “up to a year. It could go all the way up to the (U.S.) Supreme Court.”
The big difference between the two estimates reflects a disagreement over whether any court will issue a restraining order to halt Batus from buying up a majority of Farmers’ stock before the legal issues can be resolved. Woods assumes that a court decision overturning Gillespie’s ruling can be obtained quickly and that no judge will subsequently issue such a restraining order.
If Batus then buys Farmers before an appeals court can act, any decision by a court to disapprove the transaction would be largely irrelevant, Woods said. “It’s a little bit difficult to unscramble the egg.”
Uncertain Where to File
But McNitt was optimistic that a restraining order would be issued if Farmers loses the first legal round. Appeals court judges are unlikely to rush their verdict or to allow a deal to go ahead while they consider it, he said. “I just can’t in my wildest imagination imagine an appellate court . . . not taking a closer look.”
Woods said Batus has yet to decide whether to file suit in federal court--because Batus says constitutional issues are involved--or in a state superior court in Sacramento, San Francisco or Los Angeles. McNitt said Batus could also ask the San Diego Superior Court to overturn Gillespie’s decision because the San Francisco-based Department of Insurance has an office in San Diego.
More legal troubles may await Batus, McNitt said. California is only one of 30 states with out-of-state governmental ownership restrictions, he said. Idaho, Kansas, Oregon and Washington all have similar restrictions, and Batus must receive regulatory approvals from these states as well, he said.
But California’s law, as interpreted by the Department of Insurance, is much stricter than any other state’s, Woods said. He denied that Batus could face similar difficulties in other states.
Further delays could burn up some of Batus’ seemingly endless patience and money. The company has mounted an increasingly lavish public relations, lobbying and legal effort in its 8-month-old campaign to gain control of Farmers, the nation’s third-largest home and auto insurer.
