Farmers Group, a major fire and casualty insurer in California and the West, rejected as inadequate Wednesday a $4.2-billion takeover bid from BAT Industries, the giant British tobacco conglomerate.
The rejection, which was expected, may have set in motion a bidding war for the 60-year-old Los Angeles insurance company. When BAT disclosed its $60-a-share offer a week ago, insurance industry analysts said Farmers might be worth as much as $70 a share.
Farmers' announcement came after the stock market closed on Wednesday. Farmers shares closed at $56, unchanged in over-the-counter trading.
Leo E. Denlea Jr., Farmers' chairman, said BAT's offer wasn't in the best interest of Farmers and its shareholders. He said he was optimistic about future growth at Farmers and believed that it was in the company's best interest to remain independent. He said shareholders have experienced an average 18% return on their investment each year since 1971.
Can Raise Bid
Wilson W. Wyatt, a BAT spokesman, said: "We are disappointed and surprised they have not agreed to sit down and talk with us about our proposals. If they would meet with us, we are sure we could . . . satisfy the concerns they alluded to in their public statement."
Wyatt said BAT would comment further when it formally received Farmers' reply.
Analysts have noted that BAT can afford to raise its bid for Farmers, the nation's third-largest property and casualty insurer. In 1986, BAT had income of $1.2 billion on sales of $30 billion. It has about $1.8 billion in cash.
BAT has said that it wanted to buy a U.S. financial services firm as part of its strategy to move the firm away from dependence on tobacco. Its U.S. subsidiary, Batus, owns Marshall Field's and Saks Fifth Avenue department store chains and the Brown & Williamson Tobacco Co., the maker of Kool and Lucky Strike cigarettes.
Denlea said a takeover could jeopardize Farmers' relationship with the insurance exchanges that Farmers manages for a fee.