Farmrer Bros. ends family feud SETTLEMENT: Planned purchase of stock may lead to reincorporation in Deleware. By Muhammed El-Hasan DAILY BREEZE Farmer Bros. Co. on Wednesday ended a nasty family feud by agreeing to purchase all shares held by one branch of the founding family. The agreement could ensure that the Torrance-based coffee roaster and distributor has enough votes at the upcoming shareholder meeting to reincorporate in Delaware, a move outside investors describe as a power grab by management. The attorneys for chairman Roy F. Farmer and his sister, Catherine E. Crowe, announced the settlement during a brief hearing Wednesday at Los Angeles Superior Court. Farmer Bros. will buy all 443,845 shares of common stock owned by Crowes directly or through family trusts for about $111 million, or $250 a share, a steep discount below the current stock price of more than $300 a share. "The board determined that the opportunity to purchase shares at this price was a prudent use of some of the company's cash. This agreement removes a distraction as management explores additional steps to enhance shareholder value," said Roy E. Farmer, CEO and son of the chairman. The company repurchase of Crowe shares means the Farmer family will own almost 40 percent of stock and the remaining public shareholders will have a total of just under 48 percent of stock. Because the repurchase takes existing shares out of circulation, the shares held by other investors increase in value as a proportion of the company's market value. The company also approved a 10-for-one stock split to improve trading liquidity for existing shareholders. The split is subject to shareholders approving the reincorporation proposals. The company also said Wednesday that it would allow its employee stock ownership plan, or ESOP, to purchase about 125,000 shares also at $250 a share, bringing the ESOP's holdings to 300,000 shares, or nearly 19 percent of outstanding shares. In addition, Farmer Bros. said it would change the way ESOP shares are voted for the upcoming annual meetings by introducing "pass-through" voting. Only a small portion of ESOP shares have been allocated to employees, so the remaining shares are traditionally voted by the ESOP trustees, who are appointed by company management. Under the new voting approach, the unallocated ESOP shares are voted to reflect how employees vote their allocated ESOP shares. Therefore, the employees will decide how all ESOP shares -- 19 percent of outstanding stock -- are voted at the annual meeting, now scheduled for Jan. 21. The change means the employees could decide whether a management-sponsored proposal to reincorporate in Delaware passes. The proposal contains several items that would increase board members' protections from litigation and limit the influence of outside investors. The proposal's success would lead to the following provisions: • Prevent the introduction of cumulative voting , which gives small groups of shareholders a better chance to win a board seat. • Eliminate shareholders' ability to act by written consent. • Eliminate the ability of investors controlling at least 10 percent of voting shares to call a special meeting of shareholders. • Empower the board to introduce a poison pill to block a hostile takeover. A provision to introduce a required 80-percent super majority to pass any shareholder-sponsored proposals was removed from the company's latest proxy filing. Leonard Rosenthal, a shareholder and finance professor at Bentley College in Waltham, Mass., welcomed the stock split, but questioned how free the employees would be to vote their conscience without management pressure. "There is always potential for abuse," said Rosenthal, who on Tuesday lost a suit to wrestle control of the ESOP shares from company management. "I don't think this is the end game. Their final proxy has not been approved. They filed a preliminary proxy. It's not clear that the SEC will approve it." Rosenthal and other dissident investors have accused Farmer Bros. of violating the Investment Company Act by hoarding $300 million in cash and securities, which had amounted to about 70 percent of the company's assets. But Wednesday's agreement means the company's savings will be less than half the value of its assets, thereby freeing the company of any restrictions of the Act, a company spokesman said. The company insists that its 1,200 employees, including about 400 in Torrance, will be able to vote without management interference. Farmer Bros. shares rose $2.71 on the Nasdaq to close Wednesday at $316 a share. Copley News Service correspondent Gordon Smith contributed to this article. Publish Date:December 25, 2003
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