Business Built on Eggs Seeks Diversity in Fragile Times

Olson Industries, a slumping Sherman Oaks-based egg distributor wracked by a legal battle between the two brothers who founded it, is trying to pull out of its troubles by not keeping all of its eggs in one basket.

“The egg business is the foundation of everything we have,” said John W. Buffington, chairman and chief executive. “But we’d like to add some stability to the business by diversifying.”

Olson Industries is the eighth-largest egg distributor in the United States, but low egg prices have taken a toll in recent years. Since 1980, about two-thirds of sales for the company and its affiliates have come from producing, processing and distributing fresh eggs and egg products. But only about half of their profits have come from eggs, Buffington said.

“There’s no way to survive in this business unless you’re well-diversified,” said Robert D. Pierre, president of the California Egg Commission, an Upland-based industry group. “The companies that tried to make it on eggs alone have gone bankrupt.”

The company changed its name from Olson Farms to Olson Industries at its Aug. 23 annual shareholders meeting, reflecting the shift in emphasis from eggs to its plastic container and food services divisions. But Olson Industries needs more than a new name to expand: It needs money.

Finding that money is at the heart of the dispute between the co-founders. On opposite sides of the fence are two brothers--H. Glenn Olson, 79, and C. Dean Olson, 77--fighting each other for control of the company they created more than 50 years ago.

They are quarreling over a company that just reported its worst quarter ever. The loss for the second quarter ended June 30 for Olson Industries and its affiliates was $1.2 million, or $1.08 per share, contrasted with net income of $436,000, or 40 cents per share, for the same period last year.

In 1984, net income was off 60% to just over $1 million, or 96 cents per share. Olson Industries and its affiliates reported sales for 1984 of $247 million, up 6% from the previous year.

Barely Turned Profit

The Olson organization barely turned a profit last year with its egg business, largely because of low prices.

“In agriculture, you have and learn to live with the peaks and the valleys,” Buffington told shareholders at the annual meeting. “You try and do what you can with them, but a certain amount of riding through those is necessary.”

Some shareholders, however, are losing their patience with the company’s performance.

“I’ve long ago given up any idea of there being anything coming out of this deal,” said Guy C. Wilson of Pasadena. “But I do need to know where in the world this crazy thing is going and when, if ever, there is going to be anything like a return on our original investment.”

For Buffington, there is no easy answer. Retail egg prices per dozen are more than 40 cents below the peak of $1.19 in January, 1984, when an influenza epidemic in Pennsylvania killed millions of hens. The resulting egg shortage sent prices up.

Year of Overproduction

The egg industry has been suffering from overproduction for a year, according to the American Egg Board in Park Ridge, Ill., a trade association.

The industry also is recovering just slightly from a long-term decline in egg consumption. In 1960, per capita egg consumption in the United States was 332 a year, according to government statistics. By 1982, consumption reached a low of 260 a year.

Over the past three years consumption has risen modestly, a trend Olson officials attribute in part to advertising. The Egg Commission has bought television time to show advertisements of young, healthy-looking people skiing, dancing, boating, riding motorcycles--and visually interspersing the scenes with plates full of eggs.

The energies of most of Olson Industries’ 1,200 workers, including the 60 at its corporate headquarters in Sherman Oaks, still are devoted largely to the egg business. Olson Industries and its affiliates, which employ another 300 people, operate farms in Riverside and San Bernardino counties in Southern California and in the Gilroy area in Northern California. They also operate farms in Arkansas, Hawaii, Idaho, New Mexico, Texas, Utah and Washington state.

Widespread Network

Olson Industries has a widespread network of 50%-owned affiliates, which, in many cases, are operated by directors and officers of Olson Industries, including members of the Olson family.

The companies include egg production plants and ranches and a food distribution company. Olson Industries itself also does its own food distribution and operates wholly owned subsidiaries in the plastics and egg business.

Buffington said he hopes to expand Olson Industries’ non-agricultural divisions so that they make up half of the company’s sales. Meanwhile, one of those divisions, the one that distributes hard-boiled, liquid, diced and frozen egg products, showed a loss in the second quarter.

A big part of the company’s future may be in plastics. Dolco Packaging Corp., a wholly owned subsidiary, manufactures and sells foam plastic products at six plants nationwide. Its products include egg cartons, which are sold to the parent company and other egg producers.

Split on Money Source

The company needs capital to expand its non-agricultural divisions, and company officials have split bitterly on where the money should come from.

“I don’t think this company needs any kind of buyer,” C. Dean Olson said after the annual meeting.

On the other hand, H. Glenn Olson, who declined to comment publicly, has supported bringing in an outside investor.

Southwest Overthrust Oil & Gas Co., an affiliate of Anaheim-based conglomerate Winn Enterprises, was ready with the money. In April, Southwest Overthrust offered to buy 30% of the company’s stock for $7.2 million at $13 a share.

H. Glenn Olson favored the deal but C. Dean Olson didn’t, and he filed suit in Los Angeles Superior Court to block it.

C. Dean Olson then attempted to purchase the same 500,000 shares that Southwest had offered to buy, offering $13.50 cents per share. The transaction would have made C. Dean Olson and members of his family majority shareholders.

Further Complication

The issue was complicated further when two conflicting boards of directors emerged, each claiming authority to run the company. One was an 11-member board chaired by Buffington that had approved the sale to Southwest Overthrust, and the other was a five-member board chaired by C. Dean Olson.

Eventually, both offers to invest in the company fell through and the two sides agreed on a new nine-member board. C. Dean Olson withdrew his offer, the company said, because he found his bank’s financing terms unacceptable.

Southwest backed out of its proposal on July 24, citing the dispute between the Olson brothers. Buffington said there is little chance the offer will be revived. The company does not anticipate another offer from C. Dean Olson, at least until his legal problems are resolved.

Still pending are suits that H. Glenn Olson and C. Dean Olson have filed against each other to divide their joint holdings. BREAKING DOWN OLSON’S BUSINESS Sherman Oaks-based Olson industries and its affiliates, which employ 1,500 workers and reported overall sales of $247 mllion last year, primarily produce and distribute eggs. The company and its network of 50%-owned affiliates are also seeking to expand their food service and food packaging businesses. Food Service 17% Plastics 20% Eggs 63%