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Goldsmith Ends Hostile Bid for BAT Industries : Finance: Problems in getting approval to buy L.A.-based Farmers Group helped undermine the British financier's $21-billion takeover effort.


Los Angeles-based Farmers Group was spared from yet another change in ownership as British financier Sir James Goldsmith abandoned his long-running $21-billion takeover bid for the insurer's owner, BAT Industries of London.

Under Goldsmith's takeover plan for BAT, Farmers would have been promptly sold to a French financial firm. But efforts by Goldsmith's Hoylake Investments Ltd. and French insurer Axa Midi Assurances to gain approval for such a transaction met a stone wall two weeks ago when California Insurance Commissioner Roxanie Gillespie rejected the plan as excessively debt-heavy.

Gillespie's decision apparently was a key factor in foiling Goldsmith's already expensive and drawn-out campaign for taking over BAT, a conglomerate which also has interests in tobacco and retailing.

"There was a combination of factors that caused Hoylake to abandon the deal--cost, time and uncertainty," said a source close to Goldsmith. "While (Goldsmith) felt that in time he could achieve a favorable position with U.S. regulators, he didn't know how long that would take. After all, it took 10 months to get one ruling from one insurance commissioner, and he needed nine." Farmers operates in nine states.

Farmers, which was absorbed by BAT in a hostile bid less than two years ago, said it was happy with Goldsmith's decision.

"We are pleased with today's decision, which further confirms our view that the proposals by Hoylake and Axa Midi were not in the best interest of Farmers' policyholders and would not have been approved by insurance regulators in the nine states where members of the Farmers Insurance Group of Companies are based," said Farmers chief executive Leo E. Denlea Jr.

Goldsmith's firm, which owns less than 2% of BAT's stock, cited additional reasons for not pursuing its bid. Under pressure from Hoylake, BAT launched its own corporate overhaul, spinning off several businesses, including Chicago retailer Marshall Field's. As a result, Hoylake argues, there was less need for the takeover. Hoylake, contending that BAT was worth more in pieces than whole, had proposed to sell off all of BAT's non-tobacco businesses after its acquisition was completed.

"Goldsmith reached a point where he recognized the reward would be less and the risk of not succeeding was greater," this source added.

However, both sides acknowledged that the regulatory rejection of Hoylake's bid was the fatal blow. Any company that seeks to gain control of a U.S. insurance company must gain regulatory approval for the acquisition in states where the insurer is headquartered. In this case, both Axa and Hoylake needed to get approvals because Hoylake would briefly own Farmers before the company was resold to Axa. Regulators in the eight other states had yet to rule on the bid.

"BAT was certainly successful in using Farmers as a poison pill," said James McAvoy, a spokesman for Axa Midi Assurances.

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