Farmers Group Gets ‘Poison Pill’ Ready to Fend Off Its Hostile Suitor
Farmers Group announced Friday that its board had approved a “poison pill” stock rights plan designed to bolster the Los Angeles insurance holding company’s defenses against a $4.35-billion hostile takeover bid from Batus Inc.
The plan provides for issuing rights entitling shareholders to buy Farmers stock at half price if a hostile bidder such as Batus acquires 20% or more of the company. Farmers said in a statement that the plan would safeguard its stockholders and “is not intended to obstruct or impede any offer to purchase shares of Farmers, if made at an adequate price and on terms which are in the best interests of Farmers and its stockholders.”
The stock rights could also be issued if any bidder merely appeared likely to acquire more than 20% of Farmers, said Charles L. Schultz, Farmers’ senior vice president for finance. Thus, the moment that Batus receives the last of the approvals needed from nine state regulators, Batus’ outstanding tender offer for all of Farmers’ shares could trigger the rights plan, he said. Schultz stressed that he thought it unlikely that Batus would receive all nine approvals.
The poison pill is intended more to force Batus to raise its price than actually to be implemented, Schultz said. “The purpose of plans like this is really not to trigger this sort of situation” but to ensure that shareholders receive an adequate price, Schultz said.
Batus Raps Plan
If the poison pill is triggered, each share of Farmers stock would give the owner the right to pay $160 for $320 worth of stock in Farmers or its acquirer. Approved Thursday by Farmers’ board, the rights will not expire until June 23, 1998, Schultz said, although they can be redeemed by the board at any time for 5 cents each.
Batus, the U.S. arm of London-based conglomerate BAT Industries, charged in a statement Friday that “this poison pill is not in the best interest of the shareholders and policyholders, since it is intended to retain Farmers’ board’s entrenched position.”
Analysts and takeover speculators called Farmers’ move unsurprising, overdue and not very important. “It’s kind of funny, it’s sort of a last gasp that doesn’t do much in the final analysis. . . . Everybody, including BAT, knows they have to raise their offer price,” said one speculator with large holdings of Farmers stock.
In other deals, “the pills so far have not really deterred. . . . (But) while I’m against them, they’ve had the effect of developing better prices,” said Richard A. Kayne, president of Kayne, Anderson & Co., a Los Angeles brokerage firm.
Batus has offered repeatedly to raise its $63-a-share cash offer if Farmers negotiates a merger. By raising its bid, Batus could pressure Farmers’ directors to agree to a merger or risk facing lawsuits from angry shareholders. At Farmers’ annual meeting on May 20, two shareholders criticized management for guaranteeing lavish severance benefits to top executives if they leave or are fired after a hostile takeover.
Action Long Overdue
A knowledgeable analyst at another investment firm with a large stake in Farmers said the only surprise about the poison pill was that it had not been introduced immediately after Batus launched its hostile bid on Jan. 12.
The June 17 decision by California Insurance Commissioner Roxani M. Gillespie to disapprove Batus’ bid only on technical grounds may have scared Farmers into acting now, he said. “It was long overdue. . . . My feeling is the poison pill is a reflection of the decision. She approved (the deal) under the factors we were worried about.”
Gillespie ruled that Batus could not buy Farmers because more than 100 governmental entities, including various British city councils and pension funds of nationalized industries, together own slightly more than 10% of BAT’s stock. Gillespie found that this violated a state law barring out-of-state governmental ownership or control of California insurers. Batus is appealing the decision in Los Angeles Superior Court, and a hearing is scheduled for July 8.
Farmers’ announcement Friday morning seemed to have little effect on the company’s stock price, which fell 25 cents to close at $56.625 on moderate over-the-counter trading volume of 411,000 shares.
Arizona insurance regulators approved Batus’ bid June 3, though Farmers says it will ask for a rehearing. Oregon, Idaho and Illinois have held hearings without announcing any decision yet. Hearings are scheduled to begin in Ohio on June 27, Kansas on July 6 and Washington on July 18, with Texas still to be scheduled.
In an interview last week, Batus President and Chief Executive Henry F. Frigon predicted that state regulatory hearings would be completed by the end of August, but he declined to speculate when all the approvals might be obtained. “The process has just taken longer than we would have thought,” he said.
