BAT’s Suitor Names 3 Trustees for Farmers Unit : Move Attempts to Circumvent Problems That Threaten $21.7-Billion Deal
British financier Sir James Goldsmith on Wednesday named a well-known Los Angeles attorney and two other prominent Americans to act as trustees of Farmers Group Inc. in an effort to rescue his offer for the insurer’s parent, BAT Industries.
The appointment of former U.S. Sen. Daniel J. Evans, (R-Wash.), Los Angeles attorney Shirley M. Hufstedler and David Sherwood, former president of Prudential Insurance of America, was aimed at surmounting U.S. regulatory problems that threaten to derail the $21.7-billion bid made by Goldsmith’s Hoylake Investments Ltd. for the London-based tobacco, retail, insurance and paper group.
Regulators in nine states have the authority to assess Hoylake’s capability to operate Farmers Group and approve or reject the offer. Such a process could take months beyond the 60 days Goldsmith has to complete the offer. To overcome the time constraints, Goldsmith has proposed placing Farmers in a trust that would operate the company until Hoylake could find a buyer.
Rejection of Bid Urged
Trustees are individuals who temporarily hold title to property and are charged with investing the property for the benefit of another person.
“The trustees’ agreement (with Hoylake) contemplates that the insurance companies will be sold to third-party buyers upon the approval of the insurance commissioners” in the nine states, said Hufstedler. “In the event a sale to a third party is not concluded within a year . . . the trustees have the obligation to sell the companies” on their own.
On Tuesday in a 74-page document filed with British authorities, the Hoylake group offered BAT shareholders a package of securities composed of 80% debt and 20% equity that Hoylake’s financial advisers value at about $13.86 a share. Under British law, Hoylake has 60 days to complete its purchase. During the first 45 days, the firm may modify its offer to entice the required 51% or more of BAT stockholders who must tender their shares for the deal to be completed.
However, BAT’s Chairman Patrick Sheehy has urged shareholders to reject the offer, and most analysts think shareholders will heed that advice unless the offer is sweetened.
Hufstedler, 63, would not speculate on the prospects of the proposed trustee plan. Officials of the California Department of Insurance also declined to comment Wednesday after saying earlier in the week that the department would fight any challenge to its regulatory authority.
The appointment of executives to head the proposed trust came on the heels of reports that Farmers agents, as well as former U.S. Treasury Secretary William E. Simon, an investor in the Hoylake consortium, might be interested in buying Farmers.
Simon, who was unavailable for comment, is helping fund the Hoylake bid. He has previously indicated an interest in expanding his West Cost investments, however. Simon has acquired several California savings and loans and reportedly has plans to develop a merchant banking business to serve the Pacific Rim.
Would Not Elaborate
A 10-member executive council of the United Farmers Agents Assn. said it is also closely watching state insurance departments’ reaction to the trustee plan. Last month, the agents council agreed to establish an employee stock ownership plan to help finance a possible purchase of Farmers.
“We have a general plan in mind to try to acquire Farmers but it’s a bit premature to talk about it now,” said Robert Jasak, a Farmers agent in San Diego who is vice president of the agents association. Jasak would not elaborate on the plan. But industry observers said they doubt whether the group could organize Farmers agents to raise the necessary funds. Farmers has 3,930 agents in California and an estimated 15,000 nationwide.
