Offense and Defense : Farmers Says the Line Against Batus Held in Early Balloting

Chairman Leo E. Denlea Jr. urged shareholders at Farmers Group’s annual meeting Friday to turn down a hostile takeover offer by Batus Inc. and claimed the upper hand in early balloting on a non-binding resolution introduced by Batus.

The Los Angeles-based insurance holding company faces “the challenge of an unsolicited hostile takeover attempt by a British tobacco company, a company that is seeking to confuse our shareholders into exchanging their shares for a totally inadequate price,” he said, refering to BAT Industries, Batus’ parent.

After the meeting, Denlea told reporters that “we have the advantage” in an initial count of shares voted on a Batus-sponsored non-binding resolution. The resolution asks Farmers’ directors to reconsider their position not to negotiate a merger agreement with Batus. The rough count is based on votes from more than half of Farmers’ outstanding shares, he said.

A complete but unofficial result will not be available for about a week, Denlea told stockholders. An official count will not be available until the annual meeting reconvenes June 2.

Reason to Be Examined

Patrick Sheehy, chairman of BAT and Louisville, Ky.-based Batus, expressed irritation at Denlea’s quick claim of advantage and said he would “look forward to receiving the actual tally.” He made no prediction of his own.

Sheehy also indicated in an interview after the meeting that, even if the Batus-sponsored resolution lost, he might not abandon his pursuit of Farmers. “We’ve got to examine the reason why” if the resolution fails, he said.

During the annual meeting, Sheehy rose to present the resolution and remind shareholders of BAT’s long involvement in U.S. markets. He concluded with the ominous warning that “if you, Mr. Chairman, and your board still refuse to negotiate, I think you should be under no doubt that we have the patience to continue to proceed with our tender offer.”

Shareholders should be patient and not indulge in the “instant gratification” of accepting Batus’ $63-a-share offer, Denlea said in his subsequent speech to shareholders. “This is not the time to sell the company. . . . Our carefully laid plans for the past three to four years are just now taking off.”

Through the insurance exchanges it manages, Farmers Group is California’s second-largest home and auto insurer and the nation’s third-largest. BAT is the world’s largest private-enterprise tobacco company, while its Batus subsidiary owns the Saks Fifth Avenue department store chain and Brown & Williamson Tobacco Corp., maker of Kool and Capri cigarettes.

Discounts Offered

Farmers, a leader in nonsmoking discounts on insurance premiums, has assailed the apparent contradiction of a tobacco giant buying a life insurance company. Folders distributed to reporters at the annual meeting held two recent press releases, a proxy statement, an annual report and a detailed pamphlet on the health risks associated with smoking.

Sheehy told shareholders that “those who are attracted to non-smoking discounts will still be offered them.” Both of BAT’s insurance subsidiaries in Britain offer such discounts.

One shareholder interviewed at the meeting found Farmers’ charges to be extreme. “I’m not a smoker, but I find they’re kind of reaching out there,” said James Downey, a retired 40-year veteran of the Los Angeles County Sheriff’s Department whose father bought stock in 1919 in a firm that later became part of Farmers.

But Downey was impressed by Denlea’s speech. “Since I’ve been with Farmers so long, I’m sentimentally inclined toward the current administration,” he said. “I see nothing presented yet to change my decision.”