11/25 16:21
Farmer Brothers Holders to Vote on Becoming Investment Company
By Laura Smitherman
Washington, Nov. 25 (Bloomberg) -- The Securities and Exchange Commission
ordered Farmer Brothers Co. to let shareholders vote on whether the company
should operate as an investment company, which would require more disclosure
of details about its portfolio.
Farmer Brothers had asked for an assurance from the SEC that it wouldn't
take action if the Torrance, California-based company known for its coffee
products didn't put the shareholder proposal up for a vote at its annual
meeting set for Dec. 26. The SEC responded in a letter this month, saying it
is ``unable to concur'' that the proposal can be excluded.
John Simmons, treasurer at Farmer Brothers, declined to comment on the
proposal. Proxy materials including the proposal will be sent to
shareholders soon, Simmons said.
Franklin Mutual Advisors LLC, a mutual fund group that holds a 9.6 percent
stake in Farmer Brothers, has been pushing for the company to comply with
the Investment Company Act of 1940. Shareholders would benefit from knowing
how Farmer Brothers manages $295 million of cash and short-term investments,
and the company would be required to hire professionals to oversee the
investments, Franklin Mutual says.
Farmer Brothers said in a letter to the SEC that the proposal was too vague
and that registering under the investment company act would cause Farmer
Brothers to be in violation of federal securities laws because the company
isn't structured to be in compliance with the act.
Generally, companies with at least 40 percent of assets in investment
securities, except for government securities, must register with the SEC as
an investment company.
Assets Invested
The $295 million of cash and investments represents about 70 percent of the
company's total assets as of Sept. 30, according to SEC filings. Farmer
Brothers had $234 million invested in U.S. Treasury and U.S. agency
obligations at the end of September, an investment choice that yields a low
return and that could be intended to make the company fall outside the 40
percent guideline, said Gary Lutin, a New York-based investment banker and
shareholder activist working with Franklin Mutual.
Farmer Brothers' business is distributing coffee to restaurants, hotels,
hospitals and other customers. Farmer Brothers stock fell 70 cents to
$309.30 today in trading on the Nasdaq Stock Market. The shares have gained
17 percent this year.
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