Farmer Bros. Seeks to Boost Control
Farmer Bros. Co. will ask shareholders to reincorporate the coffee roaster in Delaware and approve other changes that could strengthen management’s hand in its battle against a group of dissidents that includes a major mutual fund.
Farmer Bros. said in a Securities and Exchange Commission filing Friday that reincorporation would eliminate a variety of shareholder rights, including the ability of individuals controlling as little as 10% of shares to call a special meeting.
About two-thirds of California’s public companies are incorporated in Delaware, where the body of corporate law makes it harder for outsiders to win takeover and change-of-control battles.
Farmer Bros.’ plan also proposes that with reincorporation, a supermajority vote of 80% of shares outstanding be required to make any shareholder-proposed changes in the company’s bylaws. Farmer Bros. Chairman Roy F. Farmer, 87, and other executives control about 50% of Farmer’s voting stock.
The supermajority proposal drew sharp criticism from corporate governance experts.
“It is very negative for investors,” said Fred Nesbitt, executive director of the National Conference on Public Employee Retirement Systems. “It runs absolutely contrary to good corporate governance.”
Torrance-based Farmer Bros. declined to comment on its proposals, which also include a plan to stagger the terms of its seven-member board.
Brad Takahashi, a vice president of Franklin Mutual Advisors, said the company’s proposals were “typical of its efforts to build walls and deepen the moat around management.”
Franklin owns 9.6% of Farmer Bros. and has clashed with management over disclosure issues and the use of the company’s $300-million cash stockpile.
The mutual fund has offered its own shareholder proposal to limit the ability of the company’s directors to tap corporate funds for legal services.
The Franklin proposal would allow them to receive legal defense funds only with the approval of shareholders or upon a judge’s order.
Farmer Bros. is seeking SEC permission to remove the Franklin proposal from proxy materials for the company’s annual meeting Jan. 5.
Shareholders also will be given a chance at that time to consider a proposal by Costa Mesa hedge fund Mitchell Partners to reinstate cumulative voting for the election of directors.
With such rights, investors receive one vote for each share they own, multiplied by the number of positions on the board. They can spread their votes among nominees or pool them behind one candidate.
Farmer Bros. said in its filing that if the reincorporation vote succeeds, the dissident proposals would become invalid even if a majority of shareholders approve them.
Farmer Bros. shares rose 1 cent to $326 on Nasdaq.
This month, Farmer Bros. reported its seventh straight period of earnings decline and a decrease in profit and revenue during its fiscal year. Earnings in its fourth quarter fell 13% to $5.78 million on revenue of $47.8 million.