Bid for Farmers Disapproved : Oregon Throws Roadblock Before Batus

The Oregon Department of Insurance issued a sweeping disapproval Thursday evening of a $4.35-billion bid by Batus Inc. for Farmers Group, a giant Los Angeles-based insurance holding firm.

The decision represents a major setback for Batus, which must obtain regulatory approval from nine states to acquire Farmers intact. Not only did Oregon Insurance Commissioner Theodore R. Kulongoski turn down the deal, but he upheld virtually all of Farmers’ objections to it.

Coming on top of a recent decision by California Insurance Commissioner Roxani M. Gillespie to disapprove the bid, Thursday’s ruling puts the entire deal’s future in doubt.

Policy Restriction Cited

Farmers had criticized the deal as dangerous to its policyholders because Batus will have to borrow $3.2 billion and repay the money out of Farmers’ profits.

Kulongoski also cited an intention of Batus, which owns Brown & Williamson Tobacco Corp., to restrict the nonsmoker policies sold by Farmers. He said the continued denials by Batus “of the known adverse health effects of tobacco smoking, and its stated intentions of precluding Farmers from referring to such health effects in its marketing literature, do not promote the interest of the insurance-buying public.”

Farmers Group Chairman and Chief Executive Leo E. Denlea Jr. praised Kulongoski’s decision in a statement: “State law gives him the difficult job of protecting the state’s insurance-buying public--and he did just that.”

But Batus condemned the decision in a statement, saying Oregon disapproved the deal on grounds that raised no objections from insurance officials in either California or Arizona. “Further, Mr. Kulongoski’s statement to the effect that this is not a financially distressed company, but rather a well-managed one being acquired by a larger company seeking to diversify, suggests that the decision is anti-takeover, rather than protection for the policyholders.”

“We’re astonished by the decision.” Batus spokesman Wilson W. Wyatt said.

Arizona approved the deal on June 3, and Gillespie rejected it on June 17. Gillespie found the Batus offer acceptable on purely financial grounds but disapproved it on the grounds that its parent, BAT Industries, was partially owned by government agencies based outside the state--a violation of California law.

Battle Was Predicted

Two Arab governments together with various British government and nationalized industry pension funds own more than 10% of the stock in BAT Industries.

Analysts had repeatedly predicted during the past three months that Batus would find it tougher to obtain regulatory approval in Oregon than in any other state. That is because Oregon allows the disapproval of deals on the relatively subjective grounds of being against “public policy,” whereas the other eight states which must approve the deal all set primarily financial criteria for judging takeovers of insurance companies.

Kulongoski announced his decision after the close of stock trading Thursday.

Farmers Group stock closed at $53.75, down 12.5 cents, in moderate over-the-counter trading of 318,400 shares.