Sent: Monday, February 23, 2004 10:24 AM
Subject: Practical choices for shareholders
Management's course is clear. In the absence
of any court or regulatory action to block the process, it is assumed they
will press forward with their reorganization plan. The only open question
is whether the board will use the additional authorized shares for a
10-to-1 stock split, as promised, or for the implementation of a "poison
pill" to add to their takeover defenses.
What we must address now is the course for
shareholders. Based on recently expressed views, investors cannot be
expected to rely on the existing board of directors to manage Farmer Bros.
in the best interests of its shareholders. That leaves shareholders with
a very obvious and simple choice: either replace management or surrender
your interests to them.
For those of you who choose to protect your
interests -- or those of you who have no choice -- there appears to be
only one practical means of replacing management. That is a sale of the
company.
A sale is likely to be the only alternative
that will be supported by the required votes of both non-management
constituencies, the public investors holding 41% of the stock and the
employee beneficiaries of the ESOP holding 19%. Each has an interest in
maximizing the long term strategic value of the company's coffee business,
either purely for investment value or for a combination of that and job
security. Both independent and employee investors will benefit from the
business being run by managers who are capable of growing it, and both
will suffer if the business is allowed to deteriorate. But,
realistically, employees cannot be expected to vote against their existing
"supervisors" -- to use the term presented bluntly by management in their
February 12th solicitation of employee votes -- if those "supervisors"
might remain in control afterwards. A dissident slate of directors, by
itself, is therefore unlikely to win employee support. What employees
need is an action, such as a sale, that results in a certain replacement
of any "supervisors" they voted against.
Developing a plan for a sale will require our
examination of the following:
• Strategic buyers able to develop the
greatest value from the company's coffee processing and distribution
business
• Potential value realization from real
estate, securities, and other non-strategic assets
• Restructuring of ESOP transactions to
relieve employee pension of $65 million debt burden
• Resolution of potential claims against
directors, including recovery of corporate funds transferred to ESOP
Some of you have noted that you thought a sale
of the company appeared to be the most sensible alternative when the Forum
was initiated nearly two years ago. I think almost everyone will now
agree that you were right. Fortunately, the developments since that time
have put you in a significantly better position to achieve your objective.
I will welcome your comments, as always, and
look forward to proceeding with this new -- and presumably final -- phase
of the Forum.
- GL
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212/605-0335
Fax: 212/605-0325
Email: gl@shareholderforum.com
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