Farmers Shares Drop $2 After Oregon Ruling : Investors Fear Decision Could Cripple Takeover
Shares of Farmers Group dropped in extremely heavy trading Friday amid investor fears that a ruling by the Oregon insurance department will severely delay or even kill a $4.35-billion hostile takeover offer from Batus Inc.
“My position is substantially reduced. . . . I just can’t bear with losing another dollar in this issue,” said one glum takeover speculator, or arbitrager, who was selling stock in the Los Angeles insurance holding company.
Farmers shares on Friday fell $2 to close at $51.75 in an apparent reaction to Thursday evening’s sweeping decision by Oregon Insurance Commissioner Theodore R. Kulongoski to disapprove Batus’ $63-a-share offer. Trading zoomed to 2.7 million shares from 318,400 on Thursday, making Farmers the second most actively traded over-the-counter stock.
Kulongoski’s decision follows a June 17 ruling by California Insurance Commissioner Roxani M. Gillespie to disapprove the deal on narrow technical grounds. Louisville, Ky.-based Batus is suing to overturn Gillespie’s decision, while still awaiting word from six other state insurance commissioners.
Especially Damaging
Batus might have had a chance at a friendly deal and freedom from regulatory troubles several months ago if it had been willing to raise its $63-a-share offer, said Gerald S. Haims, an analyst with Seidler Amdec Securities of Los Angeles. Although all insurance takeovers require regulatory approval, friendly deals are rarely challenged. But the moment passed when Batus--the U.S. arm of BAT Industries, a British tobacco and retailing giant--refused to sweeten its offer in the absence of another bidder or a guarantee that Farmers would sit down and negotiate.
“I felt that was the border line, the whole turning point,” Haims said. “They could have probably wrapped this thing up.”
But a higher bid now may not be an option because Batus’ position has become so weak, Haims said. “It’s too late, they’ve already been rebuffed, they have to slug it out in the courts.”
Kulongoski’s decision was viewed as especially damaging to Batus because he disapproved the deal on many different financial and public policy grounds. He strongly criticized the admitted intention of Batus, which owns Brown & Williamson Tobacco Corp., to restrain Farmers from advertising the health risks of smoking in promoting its nonsmoker insurance premium discounts. And he ruled that Batus’ plans for financing the deal could threaten Farmers’ stability and the interests of its policy holders.
“People here really do genuinely feel this confirms the fears we’ve had all along,” Farmers spokesman Jeffrey C. Beyer said.
Batus spokesman Wilson W. Wyatt declined to comment.
