CSFB Is Asked to Aid Farmer Bros.
Embattled coffee roaster Farmer Bros. Co. has hired investment banker Credit Suisse First Boston to explore “strategic options,” according to documents filed in response to a lawsuit against the Torrance-based company.
Although such a statement can signal that a company is about to put itself up for sale, the timing and manner of the disclosure left the exact nature of the investment bank’s work for Farmer Bros. unclear.
The company declined to comment on the declaration, which was filed Wednesday in U.S. District Court in Los Angeles by independent director John Samore Jr. in response to a shareholders’ lawsuit seeking certification as a class action.
Samore, who was named as a defendant in the suit, said Farmer Bros. had retained the investment firm in September “to assist the company in exploring strategic options and the means for improving the company’s performance.”
With a market value of more than $600 million, Farmer Bros. is one of the largest publicly traded food processors based in California.
The company is sitting on a $300-million cash stockpile, which represents about 70% of its assets.
Although it is cash rich, Farmer Bros.’ business has shrunk in recent years, with earnings and sales steadily eroding in the last two years, and management is facing shareholder discontent that has taken the form of lawsuits and other actions.
One shareholder, Jim Mitchell, whose Costa Mesa hedge fund owns about $460,000 in Farmer Bros. stock, said he doubted that the company would put itself up for sale. Rather, he said, Farmer Bros. might use CSFB for advice on how to take the company private.
Mitchell and other shareholders have pushed Farmer Bros. to go private, contending that the company is run as a family business by Chairman Roy F. Farmer and his son, Chief Executive Roy E. Farmer, and other managers who hold voting control over 53% of the stock.
Farmer Bros. met this year with Franklin Mutual Advisors, a longtime critic of the company, to discuss buying out the mutual fund’s 9.6% stake. Nothing came of the discussions.
Franklin objects to the company’s efforts to reincorporate in Delaware and other provisions that would make it hard for non-family shareholders to push for changes at Farmer Bros.
However, Samore signaled that the company might be willing to give a bit in that fight, saying in his court filing that the board was willing to eliminate a provision in the reincorporation proposal that required an 80% supermajority of shareholders’ votes to change bylaws. Shareholders are scheduled to vote on reincorporation Jan. 5.
Farmer Bros. also is involved in a dispute, between branches of the family that founded the business in 1912, over control of a trust that holds 12.5% of the company’s stock.
Samore’s filing was in response to a lawsuit filed this month by Leonard Rosenthal, a shareholder and finance professor at Bentley College in Waltham, Mass., who alleged that directors and senior executives have used company funds to lend an Employee Stock Ownership Plan millions of dollars as a way to increase their control. The ESOP owns about 9% of the company.
Court hearings on both the family dispute and the Rosenthal case are scheduled for next week.
Farmer Bros. shares fell $5.34 Friday to $312.31 on Nasdaq.
