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BAT Begins Lobbying Earnest Effort Against Takeover

July 21, 1989

LONDON (AP) _ BAT Industries PLC has begun in earnest its lobbying effort to get the British government to block Sir James Goldsmith’s hostile $21 billion takeover bid. Analysts were divided Friday about its chances of success.

Meanwhile, Baring Brothers and Co. Ltd., a privately owned merchant bank, was exploring independently interest among financial institutions in launching an alternative bid, sources familiar with the talks said Friday.

The Goldsmith group, through a new company called Hoylake Investments PLC, is offering $13.86 a share worth of securities, mostly high-yielding junk bonds, for BAT. Launched July 11, the bid is 80 percent debt-financed.

The Goldsmith group says it wants to break up BAT by selling off its non- tobacco interests.

BAT confirmed Friday that 170 members of Parliament have signed a motion calling for the bid to be referred to the Monopolies and Mergers Commission for an investigation on the ground that the offer’s highly leveraged nature is against the public interest.

The members of Parliament are seeking a preliminary debate on a motion condemning the use of highly leveraged junk bond financing ″to take over major British companies for the express purpose of breaking them up,″ BAT said.

Such financing ″poses a direct threat to British industry,″ the motion said.

It wasn’t known whether House of Commons leaders would approve a debate before Parliament adjourns on July 28 for its summer recess, which extends until Oct. 17.

A bid can be held up for months if it is referred to the monopolies commission. Under the usual procedure, the Office of Fair Trading recommends to the trade secretary whether a matter should be referred to the commission.

BAT Chairman Patrick Sheehy has said the company also intends to make a direct submission to the Office of Fair Trading seeking a referral.

″I think there is more than even chance that the bid will be referred,″ said Bruce Davidson, an analyst with the London investment firm Smith New Court PLC. ″The political implications are enormous. Should things go wrong, the politicians need the assurance that at least they would be able to say they had looked at it.″

Nigel Utley, an analyst with Laing and Cruickshank, said that, despite the considerable support BAT has been able to attract in the House of Commons, ″I would have thought still that the government would not refer it.″

Utley also noted, ″A reference doesn’t guarantee that the (government’s final) decision would be negative. In the end, it would just give them (BAT) more time to plan a defense.″

The government has blocked bids in the past, mostly on competition grounds but also for public interest reasons.

Energy Secretary Cecil Parkinson, who has no say in the matter but who, as a Cabinet member, may reflect the government’s views in this case, said, ″I have to say I rather regretted the arrival of the junk bond. I don’t think it’s man’s greatest invention.

But the minister added at a luncheon of The Association of American Correspondents in London, ″It’s a free country. It’s not the government’s business. Its BAT’s and BAT’s shareholders’ and they have to make up their minds.″

U.S. insurance regulators also are looking at the bid because BAT owns Farmers Insurance Group Inc. of Los Angeles.

A source close to Barings said the merchant bank was prepared to act as a ″focal point″ for shareholders who want to ″maximize their investment.″ Barings declined to comment.

A spokesman for BAT, who spoke on condition he was not identified, said the conglomerate had not been approached by Barings, but added BAT ″is always happy to talk to shareholders and Barings is one.″

Barings has been exploring the possibility, among others, of restructuring the conglomerate into a single holding company with four classes of shares to represent its four principal businesses of tobacco, retailing, paper and financial services, sources said.

Utley, one of the analysts, said: ″I think it’s a natural response from the investment banking community who will be looking for ways to help BAT realize value for their shareholders. I’m sure this is just one of several possibilities they are looking at.″

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