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Forum Summary: Farmer Brothers Co.
Shareholders of Farmer Brothers Co. (NASD:FARM)
have encouraged the establishment of a forum for an effective exchange of
investor and management views concerning value enhancement opportunities.
The company's steady accumulation of surplus
funds -- $279 million in cash and securities as of December 31, 2001,
constituting 69% of total corporate assets -- has led some analysts to
evaluate Farmer Brothers as two separate investments. One is an investment
fund with a $145 per share NAV (Net Asset Value). The other is a competitively
efficient coffee business with more than $210 million annual sales and $40
million pre-tax income, which may be valued in excess of $275 per share using
ratios 20% below industry averages. Considering such estimates of independent
valuations totaling over $400 per share, or about an $800 million market
capitalization, many investors want to know what management will do to provide
shareholders with at least 30% more value than can be realized from the past
month's $300 per share trading range for Farmer Brothers' stock.
The forum's purpose is to examine strategies
which may contribute to the realization of full value, and identify the
conditions required to implement those strategies. Initial suggestions of
possible alternatives include the following examples:
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comply with the Investment Company Act of 1940, to provide
shareholders with the independent governance and regulatory benefits of a
professionally managed investment fund, separated from management of the
coffee business;
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split the investment fund and coffee business to create two
independently traded entities; or
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use the surplus funds to recapitalize Farmer Brothers.
Specific plans for forum activities will be
developed as alternatives and issues are defined, and according to the level
of participation by Farmer Brothers management. The company itself will be
invited to support the forum, and it is hoped that the responses of its
directors and representatives will permit cooperative exchanges of information
and views in an open process accessible to all investors. However, even in the
absence of management participation beyond obligatory responses to shareholder
requests, the forum may conduct board inquiries, professional workshops,
shareholder surveys or other activities as required to provide investors with
the information they need for their evaluations and decisions. The forum is
intended to offer the same kind of communication opportunities as a
traditional shareholders meeting, but conducted independently and without
restriction to a physical gathering.
Participation in the forum will be open to
all Farmer Brothers shareholders, without charge. Franklin Mutual Advisers,
LLC, the manager of funds owning approximately 9.7% of Farmer Brothers shares,
is providing initial sponsorship for the forum and has arranged for it to be
chaired by Gary Lutin, the investment banker who has conducted similar
programs to resolve investor interests in such companies as National Presto,
Dun & Bradstreet, Amazon.com, Lone Star Steakhouse, and Willamette Industries.
April 18, 2002
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