Thursday, May 23, 2024

Citrus Farmer, Pursuing Strategic Alternatives

Limoneira Company (LMNR) ($330MM market cap) is a California based citrus farmer (primarily lemons, secondarily avocados) packager and part-time real estate developer that announced on 12/1/23, they were pursuing strategic alternatives.  From the press release:

Scott S. Slater, Chairperson of the Board, stated, “Over Limoneira’s 130-year history it has grown into one of the leading, sustainable agribusiness companies in the world with over 11,100 acres of valuable lands, real estate properties, and senior water rights. Over the past 18 months, we have developed a strategic roadmap intended to enhance near and long-term shareholder value. Today, we consider ourselves to be in a strong financial position, having recently reduced our net debt position and rightsized the balance sheet through our ongoing strategic shift towards an asset-lighter business model. Given the Board’s belief that there is a disconnect between Limoneira’s public market value and the intrinsic value of our Company’s underlying assets, the Board believes it is the right time to explore all strategic options to prioritize the Company’s growth and stockholder value.”

Last summer, the company hosted an investor day where they laid out their estimated fair market value of LMNR’s real estate and other assets:

Today, the stock trades for roughly $18/share, or a 40% discount (60% upside) to the low end of the above NAV (which they cite is based on recent agriculture transactions).  I waited a little while to buy this one (the price has also come in from the post-announcement excitement) as it strikes me as a potentially difficult business to sell leading to an extended timeline:

  1. Agriculture/farming operations aren’t know as fantastic businesses, they’re price takers not price makers and as a result, can be very cyclical.  They’re also capital intensive, although Limoneira is trying to be more of a farm management and packaging company, as seen above, the value is in the land and related assets.
  2. Part of the value is in higher or better uses of the real estate, such as difficult to monetize water rights.
  3. This is a old company, main employer in town (many of their employees live on property in housing owned by Limoneira), as a result, it’s probably hard from a personal relationship perspective to be the management team that sells to outsiders.  Easier to maintain the status quo.

But there is reason to believe management does intend to sell, shortly after the strategic alternatives announcement, they let 13D holder Peter Nolan on the board:

Limoneira Chairperson of the Board, Scott S. Slater, stated, “… We are pleased to welcome Peter and believe he will be a valuable asset in guiding the Company as we continue to execute against our strategic roadmap to enhance near and long-term value and commence the exploration of potential strategic alternatives aimed at maximizing value for our stockholders.”

Peter Nolan, Chairman of Nolan Capital, Inc. commented, “I am excited to be joining the Board of Limoneira as it enters this phase of exploring ways to unlock additional value for stockholders.”

Peter Nolan, a former PE executive, owns 6% of the company and his family office has some past experience with real estate and agriculture businesses.  The two events of Nolan showing up on the shareholder registry and strategic process seem related, hopefully he can help engineer a sale here.

Unlike other situations, management doesn’t appear to be an obstacle here; this article from the VC Star provides some interesting background on the company, including how it came public after they tripped the SEC shareholder count number and had to list in 2010.  They haven’t gained much from being public, probably makes sense for them to be private again.  CEO Harold Edwards is quoted, “The value the market perceives we have versus what we believe is the intrinsic value – there’s always been a big difference between those two things.  The idea is that maybe there’s a better way for us to operate.  Maybe there’s a better ownership structure that isn’t public.  Maybe it’s private, or maybe it’s merging together with another public company.”  Guessing we just have to be patient on a sale, maybe mid-to-late summer is reasonable.

Disclosure: I own shares of LMNR

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