BAT Industries Rejects Bid Worth $21.7 Billion : Goldsmith Undaunted, Expects Record Offer to Win Over Shareholders
BAT Industries on Tuesday formally rejected the largest corporate takeover offer in European history: an unsolicited $21.7-billion bid from Hoylake Investments Ltd. led by investor Sir James Goldsmith.
The rejection came as Hoylake officials expressed concern that U.S. regulatory review might derail the bid for the London-based tobacco, retail insurance and paper group. Regulators in nine states have the authority to assess the buyer’s capability to operate BAT’s Los Angeles-based insurance subsidiary Farmers Group.
“We don’t take any problem seriously except the Farmers’ one,” Hoylake’s Sir James Goldsmith was quoted as saying at a London news conference Tuesday. Hoylake first disclosed the offer, which will give shareholders new securities but no cash for their BAT shares, on July 12. The London-based company on Tuesday filed its offering documents with British authorities, which by law gives the buyer 60 days to complete the deal.
Owns Saks Fifth Avenue
However, BAT Chairman Patrick Sheey quickly urged shareholders to reject Hoylake’s offer as “a bundle of paper of dubious value.” But analysts say Goldsmith’s group may increase its offer of $13.86 in securities for each share of BAT, which is the parent company of Batus of Louisville, Ky., operator of Saks Fifth Avenue, Marshall Field’s department stores, Brown & Williamson Tobacco Corp. and Farmers Group Inc.
If successful, Hoylake’s bid would be the largest in Europe and exceeded only by the $25-billion takeover of RJR Nabisco by Kohlberg Kravis Roberts earlier this year.
Yet even if Hoylake succeeds in getting BAT stockholders to tender their shares, the investment firm must contend with potentially lengthy reviews of the proposed sale by insurance regulators in nine states, including California.
If the reviews take longer than two months, the regulators could doom the bid because of the rigid 60-day deadline to complete the takeover. As a result, most observers believe that it is next to impossible that Hoylake will overcome the regulatory hurdles before the deadline passes.
“I don’t think it’s possible for them to get approval that fast,” said Richard Kayne, president of the Los Angeles investment house Kayne Anderson & Co. “Regulators have to do a detailed analysis of a sale for the protection of (insurance company) policyholders.”
In an attempt to block that analysis, Hoylake filed suit in federal court last month challenging the right of state insurance departments to review the deal. Hoylake argued that the U.S. Constitution gives the federal government the right to regulate interstate and international commerce, not the states.
Plans for a Trust
“Notwithstanding the fact that BAT is a British company, the domicile of Farmers is in Los Angeles so they have to go through the whole regulatory rigmarole, which could take several months,” added Gerald S. Haims, an independent thrift and insurance industry consultant in Beverly Hills. “To try to sidestep the the insurance commissioner would be unprecedented as far as I know.”
Officials of Hoylake could not be reached for comment.
Besides the lawsuit, Hoylake has devised a second strategy for dealing with the regulatory hurdles confronting the sale of Farmers.
Goldsmith said he and his partners would place Farmers in a trust, with three trustees to run the company until Hoylake could find a buyer for it. Trustees would be named next week, he announced at the London press conference.
No knowledgeable officials could be reached at the California Department of Insurance to comment on the plan. But a department spokeswoman said the agency can take up to 60 days to review a sale and would “vigorously” fight any challenge to its regulatory authority.
A handful of Farmers’ 3,930 agents recently agreed to establish an employee stock ownership plan to help finance a possible employee purchase of Farmers, according to Frank Thomas, a Farmers agent in Hayward. But a Farmers’ executive, who asked to remain anonymous, said he doubted the group had the means to acquire the company.
“I don’t think they could raise more than a couple of hundred thousand dollars at most,” the executive said.
