British financier Sir James Goldsmith said Wednesday that his investment group will sell Los Angeles-based Farmers Group Inc. to a French insurance concern if he succeeds in his hostile bid to buy Farmers' current parent, BAT Industries.
Goldsmith said Hoylake Investments Limited, which he formed with other investors to make a $21.7-billion bid for London-based BAT, reached a conditional agreement under which Axa Midi Assurances would buy Farmers for $4.5 billion. Paris-based Axa Midi, which owns a very small reinsurance company in the United States, would also invest about $952 million (600 million pounds) in Hoylake, Goldsmith said.
Not a 'Fit Parent'
In making the announcement, Hoylake is trying to persuade state insurance regulators not to veto the sale of BAT. But in London, BAT Chairman Patrick Sheehy said Hoylake was selling out BAT shareholders. "Hoylake is proposing to sell Farmers Group on the cheap in a forced sale. BAT Industries shareholders would be deprived of its real value and future potential," Sheehy said in a prepared statement.
Farmers, the nation's third-largest home and automobile insurer, reluctantly became a part of the BAT family last December. Farmers agreed to be acquired after a bitter, 9-month campaign and only after it forced Batus Inc.--BAT's American unit based in Louisville, Ky.--to raise its bid to $5.2 billion from $4.35 billion.
Throughout that battle, opponents of the merger insisted that Batus, which owns Brown & Williamson Tobacco Corp. as well as the Saks Fifth Avenue and Marshall Fields department stores, was not a fit parent for an insurance concern. They argued, for example, that Batus might force Farmers to end discounts for nonsmokers.
Goldsmith and Hoylake officials renewed those charges Wednesday in their campaign to persuade state regulators that Hoylake is a responsible guardian that has found a suitable parent for Farmers. Under British law, Hoylake must show by Oct. 28 that there are no hurdles to its acquiring BAT. Standing in its way are the insurance regulators in nine American states who have the authority to assess whether the acquisition by Hoylake is in the public interest. Hoylake has challenged the regulators' authority in federal court, arguing that the reviews are improper because the entire transaction is taking place in Britain.
The consortium is nevertheless willing to work with the states, Samuel Pisar, Goldsmith's chief counsel, said in an interview Wednesday. But given the months that insurance regulators took to review BAT's bid for Farmers, it is not likely that they would act in time to meet the British deadline, he said. Pisar said the question of Hoylake's fitness to operate an insurance company is moot given its announcement. "As of this morning, there has been a sea change. We have turned BAT's argument on its head," he said.
Pisar said that Goldsmith never intended to operate an insurance company. "Now that the buyers are known, it has to be reassuring to all of the (state insurance) commissioners," he said.
Earlier, Hoylake sought to diffuse the issue by setting up a voting trust to take charge of Farmers until it could find a buyer. Hoylake said the trustees--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--would have the power to sell Farmers on their own if Hoylake had not found a buyer by a certain period of time.
Goldsmith said in a statement that Axa Midi is "an ideal business partner for Farmers." He said: "We have demonstrated our resolve to sell Farmers as quickly as possible to a company of impeccable credentials. . . . Which is the better custodian of Farmers? A sprawling tobacco based conglomerate--with its inherent conflicts of interest--or a successful and growing insurance group."
Axa Midi's history dates back some 200 years, but the current entity came into being as a result of hostile merger attempt. Compagnie Du Midi formed an alliance in 1988 with the Axa insurance group in an attempt to block a takeover by Italian insurance company Assicurazioni Generali S.p.A. Subsequently, Axa won control of Compagnie du Midi, forcing out its chairman. Meanwhile, Generali persisted in efforts to form a relationship with Axa and now has about a 20% stake in the company.
Fighting Over Farmers' Fate
Axa Midi owns five insurance concerns in Canada but has only a small presence in the United States through its Gamma Reinsurance Co. of New York. Although Gamma is licensed in 43 states, including California, its influence is "negligible," said an Axa Midi spokeswoman. If Hoylake's scenario is successful, the merger would guarantee Axa Midi "a significant position" in the American market, Axa Midi said in a statement. Farmers is the nation's 15th-largest insurance concern.
On Monday, BAT formally defended its rejection of Hoylake's offer, saying that the bid is nothing more than an attempt to break up a "successful company for the personal gain of a group of extremely wealthy people." Pisar said BAT deserved to be broken up because it has moved far beyond its expertise in the tobacco business, "often making a mess" of companies it acquired. "Had BAT stayed a tobacco company, it would be like Philip Morris today.