A buyer for coffee roaster Farmer Brothers Co. could surface in early January, according to an activist shareholder that has helped engineered investor opposition to the company's family ownership.

Gary Lutin, president of New York investment bank Lutin & Co. and spokesman for a dissident shareholder group that has bedeviled Farmer Brothers management for more than two years, said talks with strategic buyers have narrowed the field of potential suitors from 10 to three or four.

Lutin and some of the dissidents hired food industry bank J.H. Chapman Group LLC with shareholder backing to seek possible buyers, and a final choice is expected in early January. Once that decision is made, the buyer is expected to make a bid for Torrance, Calif.-based Farmer Brothers by February or March.

"We plan to work exclusively with whoever can most effectively manage the company's coffee operations because that kind of expansive development will generate the highest value for shareholders and the greatest career opportunity for employees," Lutin said.

Lutin would not identify active suitors, but potential suitors are said to include Peet's Coffee & Tea Inc. of Emeryville, Calif., and Green Mountain Coffee Roasters Inc. of Waterbury, Vt. Food service distributors such as Sysco Corp. of Houston and Columbia, Md.-based U.S. Foodservice Inc. would also be likely candidates.

Other dissident shareholders include Franklin Mutual Advisers LLC of Short Hills, N.J., Standard Investment Chartered Inc. of Costa Mesa, Calif., and Spectrum Advisory Services Inc. of Atlanta.

Any acquisition offer would likely need to ensure job security for rank-and-file employees to get the requisite 50.1% shareholder vote needed to approve a deal. The Farmer family, which has a 39% stake through a family trust, has generally opposed moves to sell the business. That means dissident shareholders must have the approval of at least some Farmer Brothers workers, who control 18.9% of the company through an employee stock ownership plan. Institutional and individual investors that largely support a sale hold the remaining shares.

Observers familiar with the shareholder group said J.H. Chapman Group is in talks mainly with strategic bidders. Private equity groups are unlikely to be considered unless they work in tandem with a strategic buyer.

The activist shareholders say coffee industry players looking to add roasting capacity would be the best candidates to boost the company's fortunes, which have suffered as the small, independent restaurants that make up its core customer base lose coffee sales to such giants as Starbucks Corp.

In fiscal 2004, Farmer Brothers had net income of $3.8 million on revenue of $190 million, compared with earnings of $23.9 million on sales of $202 million in 2003 and income of $38 million on sales of $206 million the previous year. Farmer Brothers blames its recent struggles on the rising price of coffee beans, the shaky economy and rising internal costs.

Company leadership has also been in turmoil. Chairman and CEO Roy E. Farmer, a resident of Huntington Beach, Calif., died Jan. 7, 2005, of a self-inflicted gunshot wound. He had led the company only 10 months following his father's death from cancer in March 2004.

Any transaction would likely include a sale of company real estate, followed by a lease-back distribution to shareholders of roughly $170 million in cash the company is holding.

One Farmer Brothers shareholder said he expects the coffee roaster's management to initially oppose the hostile bid but work to negotiate a better deal behind the scenes. Another observer said the adviser hired by Farmer Brothers to seek possible buyers, Skadden, Arps, Slate, Meagher & Flom LLP, could negotiate a deal, but it's unclear how serious that effort is.

Farmer Brothers spokesman James Lucas declined to comment on whether the family would support an acquisition offer.

In addition to pressing for a sale, shareholders are waging their war on another front, writing letters to the Securities and Exchange Commission's division of investment management, arguing that Farmer Brothers' cash horde has transformed into an unregistered investment company in violation of the Investment Company Act of 1940.

Lucas rebuts that allegation, saying Farmer Brothers is still primarily in the business of roasting, packaging and distributing coffee. Even so, company executives revealed in 2003 that the SEC staff has "concerns" that Farmer Brothers may be an unregistered investment company.

Investors estimate the $170 million in cash and securities on hand represents roughly half of the company's market cap.

If the SEC deems Farmer Brothers to be an investment company, that will effectively halt a recent move to curb shareholders' rights, including a shareholder vote adopting several takeover defenses and reincorporating in Delaware.

Lutin noted that a recent court ruling forcing kitchen gadget maker National Presto Industries Inc. to register as an investment adviser could be a harbinger of Farmer Brothers' fate at the SEC if it does not auction itself off.

The specter of such a decision is likely to color any choice Farmer Brothers makes regarding an acquisition offer. "An SEC suit would likely take a couple years, but Farmer Brothers knows they are likely to lose that," a shareholder said. "So in playing an end game, considering acquisition offers, you consider that possibility."