$21-Billion Offer for BAT Industries Sets New British Record

An investor group including corporate raider Sir James Goldsmith today launched a surprise $21-billion offer for BAT Industries PLC in what would be Britain’s biggest-ever takeover.

BAT immediately rejected the bid, which if successful would put British takeovers into the big league, second in size to last year’s record $25-billion buyout of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co.

“It is no more than an ill-conceived attempt at destructive financial engineering,” BAT Chairman Patrick Sheehy said in rejecting the offer.

The investor group said it intended to restructure the company, including selling Farmers Insurance Group Inc. of Los Angeles, which BAT acquired for $5.2 billion in cash last year following a protracted takeover battle.

Hoylake Investments

An investor group called Hoylake Investments PLC was formed specifically to make the BAT bid. Among the investors in Hoylake, which has been set up as a subsidiary of Anglo Group PLC, are Oriental Investments Ltd., a company headed by Goldsmith.

Other Hoylake investors include financiers Jacob Rothschild, a Briton, and Australian Kerry Packer, owner of Consolidated Press Holdings.

BAT, whose initials stand for British-American Tobacco, is one of the world’s largest business enterprises, with extensive holdings in the United States.

Hoylake is offering 850 pence, or about $13.86, worth of securities for each BAT share.

London’s Financial Times/Stock Exchange index of 100 leading stocks soared to a post-crash peak on the news, touching a high of 2249.2, up 54.0 points on the day.

BAT jumped $3.43 to $14.68 on heavy volume by late afternoon in London.

The offer for BAT is at a 22% premium over Monday’s closing price of 694 pence a share, Hoylake said in a statement.

The investment group owns approximately 19.1 million BAT shares, which is about 1.25% of the company’s stock.

In addition to tobacco and financial services, BAT has interests in retailing. It operates Saks Fifth Avenue and Marshall Field’s stores. Its cigarette brands include Kool, Viceroy and Barclay.

Its principal subsidiary in the United States is Louisville, Ky.-based Batus Inc.

Strategy Criticized

“It is not an essential part of the case for the offer to criticize BAT’s managers nor the quality of the businesses acquired,” the announcement said. “The principal criticism is aimed at BAT’s broad strategy. Hoylake considers it a mistake to make BAT a conglomerate.”

BAT responded by saying that the offer showed a significant misjudgment of its performance and long-term potential, adding it was “wholly unconvinced that Hoylake had anything to offer to the future of its businesses.”

BAT had after-tax profit of 949 million pounds, or $1.55 billion, on revenue of 17.7 billion pounds in its most recent fiscal year, ended Dec. 31.

Born in Paris into a European banking family, the Eton-educated Goldsmith amassed millions by buying into companies then selling the stock for big profits after takeover speculation had boosted share prices. He earned a reputation in Paris and then on Wall Street as an astute raider.

The fifth-richest man in Britain, he is best known in the United States for his 1986 assault on the Goodyear Tire and Rubber Co., when after months of bitter wrangling he walked away with a $93-million profit after selling his stake back to the company.