State Hearings Open on Plan to Sell Farmers to French : Insurance: Regulators must determine whether Axa-Midi is “fit” to own Farmers Group, which would be sold if its parent, BAT, is acquired.

California insurance regulators opened a crucial hearing Tuesday into the suitability of Axa-Midi Assurances, a French insurance firm, to own Los Angeles-based Farmers Group.

Farmers’ current parent, BAT Industries of London, is being pursued by Hoylake Investments, headed by Anglo-French financier Sir James Goldsmith. Hoylake has agreed to sell Farmers to Axa-Midi if it succeeds in acquiring BAT.

Frank Britt, a Department of Insurance administrative law judge, has scheduled eight days of hearings in Los Angeles. Insurance Commissioner Roxani Gillespie is expected to announce her decision on Axa-Midi’s “fitness” by April 9.

Britt presided over a similar hearing on BAT’s fitness to acquire Farmers in 1988 before BAT’s hostile bid was sweetened to $5.3 billion, acceptable to Farmers.

A similar hearing has been under way for several weeks in Illinois, another of the nine states in which Farmers’ subsidiaries have headquarters. Hoylake and Axa-Midi must obtain approvals in each state--a process Axa Chairman Claude Bebear said will take until June.

Only then could Goldsmith refile Hoylake’s bid for BAT with the panel that regulates takeovers in Britain. That panel allowed Goldsmith to withdraw his original offer, valued at about $21 billion, after it became clear that the transaction could not be completed within the 60 days allowed under British law.

Bebear maintains that BAT is trying to use Farmers as a “poison pill” to thwart Hoylake’s hostile bid. On Tuesday, Axa-Midi filed documents that it says show that BAT Chairman Patrick Sheehy ordered a management group to explore just such a strategy. Moreover, Bebear told reporters, one of the options BAT explored was “cutting a deal with Axa-Midi and cutting out Hoylake.”

Farmers, in its opening argument, urged Britt to assess Hoylake’s suitability to own an insurance company, as well as Axa-Midi’s, in case delays should develop in the plan for Hoylake to sell Farmers. It also maintained that Axa-Midi’s plan to pay Hoylake $4.5 billion for Farmers not only undervalued the insurance holding company but would jeopardize insurance reserves in case of default on the loans, since Farmers would be Axa-Midi’s only substantial asset in the United States.