BAT Defends Rejection of Bid, Blasts Breakup

BAT Industries on Monday formally defended its rejection of a consortium’s $21-billion takeover bid, saying the offer “is designed to do nothing more than break up a successful company for the personal gain of a group of extremely wealthy people.”

BAT, a British firm that controls the Farmers Group insurance holding company of Los Angeles, said in a “defense document” that the consortium led by Anglo-French financier Sir James Goldsmith has offered only “a collection of IOUs of dubious quality.” BAT, which also owns the Saks Fifth Avenue and Marshall Field retail chains, repeated its arguments that the company has been a financial success under current management.

Goldsmith’s group disputes those claims, arguing that the diversified company needs to be broken up--”unbundled”--to realize its potential value.

In a reply, the consortium said Monday that BAT’s defense had not addressed the “strategic blunders” of the company’s retail diversification or the “failure” of its tobacco interests.

Would Be 2nd-Largest Merger

The takeover, proposed July 11 by Goldsmith, investor Jacob Rothschild and Australian media baron Kerry Packer, would represent the second-largest merger ever, surpassed only by last year’s RJR Nabisco buyout.

The BAT defense document was required under the self-regulatory rules followed by Britain’s financial community.

The consortium has offered BAT shareholders a combination of senior and subordinated notes in a takeover vehicle called Hoylake Investments; shareholders would also receive 88.1% of the Class A shares in a holding company called Anglo Group PLC. Anglo Group holds 75% of the shares of Hoylake.

But according to BAT, Anglo Group and some current holders of Hoylake notes plan to sign a shareholders agreement that would make it difficult to change the board of Hoylake, which is dominated by Goldsmith representatives.

Thus, BAT’s current shareholders would not control Anglo, nor would they control BAT after the takeover, BAT contended. BAT said the takeover would add about $1.6 billion to the value of Hoylake.

‘Huge’ Potential Profit

But through the complex share ownership structure of the deal, $566 million of that increase would accrue to Goldsmith’s group, BAT contended, while current shareholders would gain $955 million at most, and the Anglo Group minority would gain about $50 million.

Said BAT: “The potential profit that the Goldsmith camp hopes to make for itself is so huge that to describe ‘unbundling’ as ‘asset stripping’ would be unfair to asset strippers.”