Forum for Shareholders of Farmer Bros. Co.

Forum Home Page

2007 Conclusion

Forum activities relating to Farmer Bros. Co. were suspended in 2007, following the second year of new management.

Farmer Bros. Home Page


Farmer Bros. Reference


Note: Valuations reported in the article copied below are apparent misinterpretations of an analysis presented in the January 7, 2005 "Forum Report: Value Enhancement Objectives for 2005."  For example, the article's $420 million amount was not in fact presented in the Forum Report as a minimum value for the company; that number appears instead in an appended summary of "Farmer Bros. Component Values" as an average of valuation estimates for the coffee business alone, excluding investment funds and real estate, that "could be realized by managers who are able to simply match industry averages in their use of the company’s assets."  The Forum Report's component analysis had actually presented a range of potentially realizable values, adding calculations of sale prices for the coffee business to the amount of investment funds and estimates for a hypothetical real estate sale-leaseback (of the Torrance headquarters property only), ranging from $559 million ($34.80 per share) to $840 million ($52.26 per share).  Reference should be made to the Forum Report for its analysis.


Future of Farmer Bros. in doubt
by Ron Orol
773 words
13 January 2005
Copyright (c) 2005 The Deal LLC
The death of the coffee company's CEO turns the company in large part over to a family trust.

A personal tragedy at Farmer Brothers Co. could put the coffee company in play.

Chairman and CEO Roy E. Farmer, a resident of Huntington Beach, Calif., died Jan. 7 of a self-inflicted gunshot wound, according to a spokesman for the Orange County Sheriff-Coroner Division. Farmer was the third generation to run the Torrance, Calif., coffee roaster, packager and distributor. His father, Roy F. Farmer, headed the company, which his own father founded in 1912, for 50 years. Roy E., a lifelong employee, was elevated to chief executive in March after Roy F. died of cancer at age 87.

Shareholders in Farmer Brothers have long urged the company, which has struggled amid falling sales and profits, to auction itself off. Although the company has named former vice president of production Guenter Berger as interim CEO, some investors said recent events have left a vacuum in the company's management.

"The father's and son's deaths leave a big void in the company's leadership," said Gregory Bylinsky, managing director of New York-based hedge fund Lime Capital Management LLC, a Farmer Brothers shareholder.

Farmer Brothers' sagging stock price has spurred a number of investors, led by Franklin Mutual Advisers LLC, a Short Hills, N.J.-based investment firm, to press the company to find a buyer. The Farmer family, however, has discouraged such a move, and they will continue to exercise considerable control over the company's future through a trust that owns a 36% stake in Farmer Brothers.

Under pressure from investors, Farmer Brothers in 2003 hired Credit Suisse First Boston to consider strategic options. But the company later appeared to move away from efforts to arrange a deal, reincorporating in Delaware and installing several takeover defenses.

Farmer Brothers workers own 18.9% of the company through an employee stock ownership plan. Institutional and individual investors hold the remaining shares.

Gary Lutin, a spokesman for a group of dissident shareholders, said he expects the trustee of the Farmer family trust to fulfill his fiduciary responsibility to the beneficiaries. That interest is best-served by selling the company, he said.

Lutin also said employees are likely to support efforts to arrange a sale. "They may vote for an attractive buyer that could let them keep their jobs and expand the company," he said.

Farmer spokesman James Lucas declined to comment on the Farmer family's intentions.

"Any comment about the future direction of the company given the early stage of the process can only be considered pure speculation," he said.

Sanford Schlesinger, a partner at law firm Schlesinger, Gannon & Lazetera LLP in New York, said the family trust could be changed to discourage the trustee from voting in favor of a merger.

"The trustee is the guy who is in charge, but his ability to vote the shares for a merger is significantly affected by the terms of the trust," he said.

Last year Farmer Brothers had net income of $3.8 million on revenue of $190 million, compared with earnings of $23.9 million on sales of $202 million in 2003 and income of $38 million on sales of $206 million the previous year. Until recently the company's stock had been in steady decline, but since Monday shares have risen 26% to $28.24, still off a 52-week high of $39.39, on speculation the business could be sold.

Farmer Brothers blames its recent struggles on the rising price of coffee beans, the shaky economy and increasing internal costs. But shareholders contend that gourmet roasters, such as Starbucks Corp., are cutting into the receipts of the small family-owned restaurants that make up the company's core customers.

Lutin and Bylinsky value the company, whose market capitalization is roughly $464 million, at $420 million to $840 million. That includes $200 million the company has in cash and real estate holdings with an estimated worth of $15 million to $60 million.

Bylinsky said potential buyers include coffee roaster and distributors Peet's Coffee & Tea Inc. of Emeryville, Calif., and Green Mountain Coffee Roasters Inc. of Waterbury, Vt. Food service distributors such as Sysco Corp. of Houston and Columbia, Md.-based U.S. Foodservice Inc. also could take interest, he said.

Green Mountain Coffee spokesman Rich Peyser said the company has held no discussions regarding a deal with Farmer Brothers. Representatives for Peet's, Sysco and U.S. Foodservice did not return calls.

 ©Copyright 2004, The Deal, LLC. All rights reserved.


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.

For additional information or to be included in an email distribution list, send an inquiry to