The largest shareholder of Argus Group Holdings is “unlikely” to support the insurer’s acquisition of a large stake in BF&M, a money-losing rival.

Without the blessing of Equilibria Capital Management, the deal — already up against a poison pill defence put into place by the target company and strong public resistance — could be difficult to complete.

“Equilibria is unlikely to support any stake-building by Argus in BF&M,” said a source close to Equilibria who spoke on the condition of anonymity.

The source explained that the fund was inclined to object to the transaction because it does not seem to make much sense from the business point of view.

Equilibria is now 23.9 per cent owner of Argus, and it is the largest shareholder by far. It has one seat on the board, but remains largely a passive investor.

The purchase of a large stake in BF&M may not be good for Argus, the source said. The target is losing money and is almost twice the size of the acquirer in terms of market capitalisation.

In early June, Argus agreed to buy 36.9 per cent of BF&M from Camellia plc, a British-listed conglomerate and the world’s largest private producer of tea, for $100 million, $50 million of cash on hand and $50 million raised through the issuance of debt.

The transaction is scheduled for completion in the autumn.

Having lost $8.8 million in 2002, BF&M has been a drag on Camellia plc’s results. The conglomerate noted in its financials that the investment in the Bermuda insurer cost it £3.6 million last year.

The sale of Camellia plc’s stake to Argus was not supported by BF&M, and on Thursday, the company’s board of directors put into place a shareholder rights plan, a takeover defence commonly known as a poison pill.

Under the terms of the plan, existing shareholders will be able to buy an additional share of BF&M at a discount, or get one for free, for each share they already own when Argus completes the purchase. The acquirer will not get the free or discounted shares.

If the poison pill is triggered, the Argus stake would immediately be diluted, making the transaction far more expensive and far less effective in terms of increasing ownership and potential control.

Most such poison pills are effective at stopping takeovers, and courts in Bermuda and elsewhere have upheld their use.

The Argus purchase of BF&M shares has been unpopular with some Bermudians. Those opposed are concerned about the lack of competition in healthcare, as Argus, which already controls 40 per cent of primary care in Bermuda, could become a dominant player in the provision of health insurance.

Bermuda does not have competition laws that would allow the transaction to be stopped on anti-monopoly grounds.

Equilibria has been building its stake in Argus for some time.

In July 2020, it said, it owned 11 per cent of the insurer. In January 2021, the Equilibria stake was 15.36 per cent, and by June of that year, the insurer said that the fund had increased its stake to 17.12 per cent.

It increased that to the present level, of 23.9 per cent, this week, though the upping of the ownership was unrelated to the initiation of the poison pill by BF&M and did not indicate support for the Argus bid for Camellia plc’s stake in the company.

With only one seat on an 11-person board and too few shares to directly stop a resolution, Equilibria probably cannot prevent the company with votes alone from making the investment .

The source added, without elaborating, that the fund is evaluating its options.