Plan Shaped to Push Farmer Brothers Stock

By CONOR DOUGHERTY
Staff Reporter

Unhappy shareholders of Farmer Brothers Co. have taken a first step in an effort to pressure management of the secretive, family-run company to take some shareholder-friendly actions.

Franklin Mutual Advisers LLC, Farmer Brothers' largest institutional shareholder, said in a regulatory filing last week that it would sponsor a shareholders' forum to seek ways to raise the price of the Torrance-based coffee distributor's stock.

"We don't think that the value of the company is reflected in its market price," said Bradley Takahashi, assistant vice president at Franklin Mutual, a subsidiary of Franklin Resources Inc. Franklin Mutual owns 9.7 percent of Farmer Brothers' stock.

The action confirms a recent Business Journal report in which investors in Farmers said they were looking for ways to force Chairman and Chief Executive Roy F. Farmer into moves that will maximize the stock price.

Investors have complained that farmer is intentionally keeping the price down for estate-planning purposes.

A secretary for Farmer hung up the phone when a reporter called seeking comment.

A shareholders' forum isn't necessarily a hostile event. Technically, it's a way for shareholders to exchange views with management. However, it's been used in the past by investors who are dissatisfied with companies' management as a way to induce change.

Franklin, which failed in a past attempt to unseat the Farmer Brothers' board, expressed concern about the company's steadily accumulating pool of cash and securities, which totaled $279 million as of Dec. 31.

"Management has failed to articulate any coherent strategy behind its move to build up its cash and investments to such proportions," the company said in the Securities and Exchange Commission filing. "(Franklin) has communicated its concerns over the years to (Farmer Brothers) without avail."

Two years ago, Franklin opposed the re-election of Farmer Brothers' board.

Investment banker Gary Lutin, who will chair the forum, has estimated the value of Farmer Brothers' stock at $400 per share. As of April 18, the stock was trading at $325.

Lutin has suggested several alternative strategies that could be used to help Farmer Brothers realize its full value. No date has been set for the forum.

"Mr. Farmer has done a great job building a coffee business. It's my assumption that he'll want to be equally effective in addressing shareholder interests," Lutin said.

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