Coffee company Farmer Bros. percolating in power struggle COURTS: Dissident wanted to stop firm's management from voting on behalf of 9 percent of stocks at meeting. By Gordon Smith COPLEY NEWS SERVICE A minority shareholder at Torrance-based Farmer Bros. Co. lost a bid Tuesday to wrest away a key portion of the company's stock from management control. U.S. District Judge Margaret Morrow turned down the request for a preliminary injunction that would have prevented the company's management from voting on behalf of 9 percent of its stock at a shareholders' meeting next month -- a meeting that will likely determine whether the coffee roaster and distributor will reincorporate in Delaware. Such a reincorporation, proposed by management, would greatly limit the possibility that proposals made by outside investors would succeed in proxy votes. Morrow ruled that dissident shareholder Leonard Rosenthal, who filed a class-action lawsuit on behalf of minority stockholders in Farmer Bros., cannot sue the company under the federal Investment Company Act. It's up to the Securities and Exchange Commission to investigate alleged violations of the act, Morrow said. The judge also noted that the plaintiff had not established that the injunction would result in defeat of the reincoroporation proposal. "Even if the court were to enter an injunction, it is entirely possible that those holding a majority of the remaining shares would vote in favor of reincorporation," Morrow said in a tentative decision. Her tentative decision is expected to be made final by today. Thomas Dubbs, Rosenthal's attorney, argued that there will be another hearing today on a separate lawsuit that could negate management's control over 12 percent of company stock. That would reduce management's control to well under 50 percent, lending momentum to minority stockholders who are trying to prevent changes they claim will be detrimental to the company, he told Morrow. But Morrow suggested that such an argument was premature until the outcome of today's hearing is known. "We're obviously disappointed," Dubbs said after the decision. In his lawsuit, Rosenthal claimed that the Farmer Bros. management created an employee stock ownership plan and then illegally loaned it money. The move gave management control of the 9 percent of the company's shares that were in the plan and was designed to increase management's ownership stake, according to the suit. The company has denied that it set up the employee stock ownership plan to entrench management control and has said the plan improved employee morale by giving employees a stake in the firm. Rosenthal also complained that Farmer Bros. has pursued a strategy to keep the value of its stock low in recent years, in order to minimize family inheritance taxes that will have to be paid upon the death of Roy F. Farmer, the company's 87-year-old chairman. That strategy harms minority investors who want to see the value of their shares rise, the lawsuit said. "This is a family that is interested, if not obsessed, with estate tax planning," Dubbs said. On Tuesday, Farmer Bros. attorney Eric Waxman praised Morrow's ruling, and said afterward that "the company has been prudently managed for over 100 years." The value of Farmer Bros. stock has risen substantially over the past decade, Waxman noted. "That's a pretty good indication that the company knows how to manage its business," he said. Shares of Farmer Bros. fell $2.71 Tuesday on Nasdaq to close at $313.29. Publish Date:December 24, 2003
© Copyright 2003 Copley Press, Inc.
|