CALIFORNIA
Timing of Farmer Bros. Meeting 'Bizarre'
Some dissidents suspect Dec. 26 shareholders meeting is a move to defeat efforts to elect independent directors, increase disclosure.
By Jerry Hirsch
Times Staff Writer
December 9 2002
Angry shareholders are wondering when the management of Farmer Bros. Co. is going to wake up and smell the coffee.
The Torrance-based roaster and seller of institutional coffee has scheduled its annual stockholders meeting on the day after Christmas, a move several dissidents see as a ploy to defeat efforts to force the company to elect independent directors and to disclose more information about its finances.
Farmer Bros. is in the middle of a rancorous battle between one branch of the founding family, headed by Chairman and Chief Executive Roy F. Farmer and his hand-picked board, and a group of dissident shareholders, led by mutual fund Franklin Mutual Advisors, which controls 9.6%. Farmer's father founded the business in Los Angeles 90 years ago.
"I don't think there is another company in America that would schedule a shareholders meeting on that day," said Steven Crowe, nephew of the 86-year-old Farmer and a major stakeholder who is among the dissidents.
"They need to explain the timing of the meeting. I think it is very disrespectful."
The meeting is scheduled for 10 a.m. Dec. 26 at the company's headquarters in an industrial section of Torrance.
Farmer Bros. executives have provided no explanation for the timing of the annual meeting, which was held in November last year, and did not return calls seeking comment. They also have rejected requests from some shareholders to reschedule the meeting.
Management is fighting a proposal by Franklin that would require the company to comply with the Investment Company Act of 1940. Among other things, the act gives independent directors broader authority and mandates greater disclosure about a firm's investments and their performance.
In its only public comment on the situation -- in a letter faxed late Friday to New York investment banker and corporate governance activist Gary Lutin -- Farmer Bros. said "the proposal cannot pass."
Farmer Bros. is sitting on $295 million in cash and investments, an amount equivalent to about half of its total stock market value. The stockpile of cash and securities represents about 70% of Farmer's corporate assets. Generally, a firm with 40% or more of its assets in investment securities and cash must adhere to the stricter disclosure rules.
Lack of disclosure about the company in general is at the heart of the dissidents' dissatisfaction. Under Roy Farmer's management, Farmer Bros., with $200 million in annual sales, has adhered to a policy of disclosing as little as possible about its operations and strategy. On Friday, Farmer Bros.' thinly traded shares closed at $305 on Nasdaq.
Before scheduling the annual meeting, Farmer Bros. persuaded the Securities and Exchange Commission to allow the company to keep off its proxy statement a shareholder proposal by another major stakeholder -- money manager Mitchell Partners of Costa Mesa -- that dealt with the election of independent directors. But Farmer failed to block the Franklin proposal. Both issues, however, are expected to be debated at the meeting.
"The timing is bizarre," said Nell Minow, editor of Corporate Library, a corporate watchdog Web site, and author of several books on corporate governance.
Though it is uncommon, it is not unprecedented for companies to schedule meetings at inconvenient times or places to avoid dealing with shareholders, Minow said.
Maxxam Inc., a Houston-based owner of aluminum and lumber companies, held its 1999 meeting in remote Huntsville, Texas, and booked all of the nearby hotel rooms to prevent as many shareholders as possible from making the early morning event, Minow said.
Last year, NetSol Technologies of Calabasas attempted to schedule a special shareholders meeting in Lahore, Pakistan, but moved the meeting to Southern California because of the volume of complaints.
"It doesn't take too much ingenuity to realize that anybody from out of state would have to give up their Christmas to attend this meeting. I don't think many people would do that," said Jim Mitchell, who runs Mitchell Partners. The money management firm has owned 1,200 Farmer Bros. shares since 1990.
Mitchell said he believed the timing of the meeting would decrease the chances of any shareholder proposal's winning approval.
Yet the irony is that Roy Farmer is likely to withstand the dissidents' efforts regardless of when the meeting is held. Management has voting control over 52% of the stock. That includes the 12% of Farmer Bros. that Crowe and his sister own but can't vote because the shares are part of a trust controlled by his uncle.
"I plan to write a letter to my uncle asking him to vote those shares for the Franklin proposal," Crowe said, quickly acknowledging that his request is a long shot.
Catherine Crowe, Steven's mother and the sister of Roy Farmer, owns 10.6% of the company founded by her father and is expected to vote the shares with Franklin and others creating a bloc of about 25% of the company.
Meanwhile, Farmer Bros. has used the proxy statement sent to shareholders to recommend a "no" vote on the Franklin proposal. Yet in another unconventional move, management did not offer any reasons for its position.
"It is surprising that they have not even provided an explanation for why they recommended a 'no' vote on the Franklin proposal," Lutin said. "If there is some reason to oppose it, they have a fiduciary responsibility to explain it to shareholders."
Copyright 2002 Los Angeles Times
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