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The Wall Street Journal  

January 11, 2005 4:25 p.m. EST

Mkt Sees Big Changes At Farmer Bros After CEO Death

January 11, 2005 4:25 p.m.


NEW YORK -- The death Friday of Roy E. Farmer, Farmer Bros. (FARM) chairman, chief executive and president, could hasten the company's sale or restructuring after years of infighting with dissident shareholders, as reflected in the stock's more than 20% runup over the past two sessions.

The Torrance, Calif., coffee supplier has about 70% of its assets held in cash, and disgruntled shareholders have long been vocal in criticizing the company, which is 40% owned by a trust that had been headed by Roy Farmer up to his death. Another 20% stake is owned by the company's employee stock ownership plan.

Shares of the thinly traded company rose more than 10% Monday and gained another 10.5% Tuesday, ending Tuesday's regular session at $27.49 on volume of 318,600 shares, compared with average daily volume of 15,500.

The stock has risen more than 24% since setting a 52-week low of $22.05 Thursday.

"The market reaction suggests a broad appreciation of the company's value under these circumstances," said Gary Lutin, an investment banker who has joined with critics of the company.

Lutin said dissidents are "in the process of selecting potential strategic options" they expect to present to shareholders.

"We're already progressing down that path, and this doesn't change the course," Lutin said.

Roy E. Farmer, a lifelong employee of the company, was elevated to chief executive in March after his father, Roy Farmer, died of cancer at 87. The company was founded in 1912 by Roy E. Farmer's grandfather.

A Huntington Beach, Calif., police representative confirmed reports that the 52-year-old Farmer appears to have died from a self-inflicted gunshot wound in Huntington Beach.

The company on Sunday named 67-year-old Guenther W. Berger interim chairman. Berger, a 44-year veteran of Farmer Bros., also serves as vice president of production.

In the past, 9% stakeholder Franklin Mutual Advisers has been among vocal dissidents supporting the sale of the company.

A Franklin vice president, Bradley Takahashi, declined Tuesday to comment on the company's outlook.

"It's distressing news," Takahashi said of Roy Farmer's death. "It's probably just a little too early to comment."

Gregory E. Bylinsky, managing director of Lime Capital, which owns an undisclosed number of Farmer Bros. shares, said Farmers' recent share price indicates the market "is expecting a sale, some kind of buyout."

"Roy the father and Roy the son leave a pretty significant void in the leadership," Bylinsky said. "This may be a chance for a strategic buyer to come in."

-By John Seward, Dow Jones Newswires; 201-938-5400

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The Forum is open to all Farmer Bros. shareholders, whether institutional or individual, and to professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives.  As stated in the Forum's Conditions of Participation, participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

There is no charge for participation.  Franklin Mutual Advisers, LLC, the manager of funds owning approximately 12.6% of Farmer Bros. shares, provided initial sponsorship for the Forum and arranged for it to be chaired by Gary Lutin.  Continuing support and guidance of the Forum is provided by an Advisory Panel of actively interested shareholders.

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