Farmer Bros. Ends Bitter Feud in Buyout
A bitter, decades-long battle between two branches of the family that founded Farmer Bros. Co. ended in a Los Angeles County Superior Court room Wednesday, when the company agreed to buy out the interest of the Crowe clan for $111 million.
The settlement leaves the Farmer branch firmly in control of the Torrance company and gives the Crowe family a fortune that they had been unable to tap because of a complex family trust.
Over the years, the two sides have bickered over everything from seats on the board to accusations that 87-year-old company Chairman Roy F. Farmer withheld trust funds from a critically ill Crowe niece.
Wednesday’s settlement also probably alters the outcome of a separate fight between the company and dissident shareholders, including Franklin Mutual Advisors, a longtime critic of Roy Farmer and the company’s management. The deal strengthens Farmer’s hand by giving him, other executives and an employee stock ownership plan 58.3% of the company.
The Farmer-led management team intends to use its now-solid majority of the shares to reincorporate the business in Delaware and take a number of other actions opposed by Franklin, which owns 9.6% of Farmer’s stock. A shareholder vote is set for Jan. 21.
The company also plans a 10-for-1 stock split to create more of a market for the thinly traded shares.
Bradley Takahashi, a Franklin vice president, said the mutual fund would evaluate the settlement after the holidays. The fund maintains that the company has been managed more for the interests of the Farmer family than other shareholders.
Superior Court Judge Thomas W. Stoever approved the deal to buy out the Crowe family just as litigation between the two families over control of trusts that held stock in the company was about to begin. Under the agreement, Farmer Bros. will purchase 443,845 shares, or about 22.5% of the company, from the Crowes for $250 a share.
That price represented a 21% discount from Farmer’s $316 closing on Nasdaq on Wednesday. As the judge was approving the settlement, a snack bar just steps from the courtroom was handing out free cups of Farmer Bros. coffee for Christmas.
Gary Lutin, a New York investment banker and critic of the company’s management, said buying the shares at a discount was a smart move by the board. He also lauded the stock split. The company has been criticized for not being responsive to shareholders, and splitting the stock is a step toward making Farmer Bros. shares more affordable for average investors.
“The question is if these are just cosmetic appeasements, or if it is evidence of a transformation by the board,” Lutin said.
Farmers Bros. was founded in 1912 by Roy E. Farmer, the father of Roy F. Farmer and Catherine Crowe.
Chief Executive Roy E. Farmer, the grandson of the company founder, said in a statement Wednesday that the company thought it was prudent to drain down some of its $300 million in cash and securities to purchase such a large block of shares at a discount.
“This agreement removes a distraction as management explores additional steps to enhance shareholder value,” he said.
Farmer Bros. will retain more than $190 million in cash, which it said it might use for “potential acquisitions, additional share repurchases and extraordinary dividends.”
Farmer’s statement said the company had no plans to take itself private, as some shareholders have urged, or put the business up for sale “but may decide to do so in the future.”
Farmer Bros. will use about 125,000 shares to help fund its employee stock ownership plan, a move that will give the plan control over 18.7% of the company. After the transaction, the Farmer family will hold 39.6% of the shares, leaving ownership of the remaining public shareholders at 41.7%.
