Reversal of Decision Barring $4.35-Billion Takeover Bid for Farmers Asked : Batus Sues Insurance Commissioner Gillespie
Batus Inc. sued California Insurance Commissioner Roxani M. Gillespie in Los Angeles Superior Court on Wednesday, asking the court to overturn her decision barring the conglomerate’s hostile takeover bid for Farmers Group, a Los Angeles insurance holding company.
Superior Court Judge Kurt Lewin agreed to hear oral arguments in the case on Friday, July 8, and is likely to give his decision later that day or at the beginning of the following week, said James R. Woods, an attorney in San Francisco with LeBoeuf, Lamb, Leiby & MacRae, which represents Batus.
The date of the hearing is much earlier than expected, Woods said. “That’s incredible. Everything we had heard was he was booked through September.”
Gillespie disapproved Batus’ $4.35-billion offer on the grounds that governmental entities from outside the state together owned more than 10% of the stock in London-based BAT Industries, Batus’ parent.
State insurance law prohibits the issuance of an operating license “to any insurer owned, operated or controlled, directly or indirectly, by any other state, or province, district, territory or nation or any governmental subdivision or agency thereof.”
Lengthy Petition
According to Farmers, various British city councils, retirement funds of nationalized industries, two Arab governments and the Sultan of Brunei together own 13% of BAT’s 1.5 billion outstanding shares.
Gillespie ruled that there was no evidence of any collaboration by these parties to control BAT but found their combined ownership enough to justify nixing the deal.
Batus’ 11-page petition asks Lewin to declare either that Gillespie wrongly applied the statute to BAT or that the statute itself is unconstitutional. The petition does not cite legal precedents, and Woods said a full-length legal brief was not yet ready for filing.
Farmers continues to believe that Batus’ bid faces serious regulatory problems, spokesman Jeffrey C. Beyer said. The lawsuit, he added, “is not a great surprise. BAT indicated they would seek to appeal this.”
Farmers has vowed to appeal if Lewin rules against the company. If Lewin or an appeals court then issues a restraining order to bar Batus from pursuing its bid, the legal battles could rage for a year or more, a lawyer for Farmers said Monday.
The Batus petition is the first attempt to challenge in court a decision by the commissioner to disapprove a change in insurance company ownership, said Lorraine Johnson, the Insurance Department’s staff counsel in the case. “We’ve done some heavy-duty denials, and we’ve never been appealed,” she said.
Batus filed suit after stock markets closed Wednesday. Farmers Group shares finished the day at $56.625, down 37.5 cents, on very heavy over-the-counter volume of 1.23 million shares.
Stock Plummets
Meanwhile, the Philadelphia Stock Exchange said Wednesday that it is investigating transactions last Friday involving Farmers options. The exchange is examining whether its 5:30 p.m. EDT cutoff for the exercise of June options was violated by traders waiting for Gillespie’s ruling at 7:00 p.m. EDT.
The commissioner’s decision sent Farmers stock plummeting $5.25 on Monday. Options are contracts that allow the owner to buy or sell stock at a predetermined price until the exercise date. Option owners can make substantial profits on relatively small investments by correctly anticipating swings in a stock’s price.
