Thursday, January 13, 2005

 

Farmer Bros. stock soars

 

Speculation that the company will be sold leads to a price increase following suicide of the CEO.

 

By Muhammed El-Hasan
Daily Breeze

In the three days since Torrance coffee roaster Farmer Bros. Co. announced the death of its chairman, CEO and president, the company's stock price has spiked nearly 30 percent on heavy trading.

The price increase was driven by speculation that the company will be sold, and a general uncertainty about who will control the Farmer family's giant stake in the company they founded in 1912.

"I think the market's reacting as if they're expecting a sale of the company," said Gregory E. Bylinsky, managing director of Lime Capital Management, which has a stake in the coffee company. "When interest in the family business is spread out over many generations, not everybody may have an interest in running it."

Roy E. Farmer, 52, who died of a self-inflicted gunshot wound Friday morning in his Huntington Beach house, had no children, was unmarried and lived alone. He is survived by his mother, brother, two sisters and several nieces and nephews.

Farmer was the trustee of Farmer family trusts. The trusts and the personal holdings of his late father, who died in March 2004, accounted for about a 39 percent stake in the company, according to a company press release from February 2004.

It's unclear who inherited his father's holdings last year. And it's unclear who would become trustee of the family trusts.

Previously, the family trusts' shares had voted with the company's management since Farmer -- and his father before him -- controlled those stocks. It's now unclear whether that will continue, Bylinsky said.

None of the Farmer family members occupy a senior management position at the company.

"Any discussion about the future direction that may be taken, given this early stage, can only be considered as pure speculation," said Farmer Bros. spokesman Jim Lucas.

When asked about the family trusts' new trustee, Lucas said, "That's a private matter."

For the past few years, a group of dissident investors has complained about the company's direction. Farmer Bros. has seen declining profits for the past 12 quarters. Some investors have called for the company's sale.

"I'm surprised it's moved up to this level in such a short period of time because there's no signal that there's going to be any major change in the short term," Jack Norberg, chairman of Standard Investment Chartered in Costa Mesa, said of the stock price.

One possible scenario for the company's future involves senior management buying out the Farmer family, Norberg said.

Another possible scenario involves an outside buyout, possibly from a company in the food industry such as Houston-based Sysco Corp., Bylinsky said.

"I can't see how it will be resolved without the sale of the company," Bylinsky said. "I think it's definitely a takeover target."

"It just seems premature to speculate on anything," said Bradley Takahashi, vice president of Franklin Mutual Advisers, the largest outside investor.

Gary Lutin, who runs an investor forum that has criticized the company's management, said Farmer's death will not affect the "path we were already taking, that is to explore strategic alternatives," such as a sale.

Franklin Mutual Advisers was the investor forum's initial sponsor when it began in 2002. A possible scenario that may disappoint some shareholders is if a buyer seeking company control buys only the Farmer family's shares, and not those of other investors.

"The one problem that you have to analyze here is that even if there was a buyer, this is not necessarily anything more than just a control position," Norberg said.