Cal-Maine Foods, Inc. (NASDAQ: CALM) (“Cal-Maine Foods” or the “Company”) announced that it has entered into an agreement with members of the family of its founder Fred R. Adams, Jr., relating to the potential diversification of their individual financial portfolios.
As discussed below, the agreement creates a process for the potential conversion of all of their super voting Class A Common Stock (“Class A Shares”) to Cal-Maine Foods’ Common Stock (“Common Shares”). Should the conversion occur, all the Company’s shares would be a single class, with one vote per share. Because the family-owned controlling stockholder owns all of the Company’s super voting shares, converting those shares into Common Shares would cause the controlling stockholder’s voting power to fall from 53.2% to 12.0%, although its economic interest in the Company would remain unchanged at 12.0%.
The potential diversification could result in the Company ceasing to be a “controlled company” pursuant to the rules of The Nasdaq Stock Market. The timing and manner of these potential diversification transactions have not been decided. The Board of Directors (the “Board”) has taken the steps described below to position the Company for the potential loss of controlled company status.
The Company also announced that its Board has approved a new share repurchase program which authorizes repurchases of up to $500 million of Cal-Maine Foods’ Common Stock. The actual timing, value and manner of share repurchases will be determined by management in its discretion. The Company expects to strategically and opportunistically repurchase shares from time to time in the open market, subject to market conditions and other factors.
As described below, the Company has granted registration rights to the family members to facilitate the sale of Common Shares in the open market, should they decide to sell their shares. It is also possible that the Company could use a portion of its new share repurchase program to repurchase some of the family members’ Common Shares as part of the family’s portfolio diversification efforts.
Any repurchases from the family members would require approval from the Special Committee of the Board described below.Sherman Miller, President and Chief Executive Officer of Cal-Maine Foods, added, “Our share repurchase program underscores our continued confidence in the strength of our business and future cash flow generation, as well as our commitment to returning capital to our valued shareholders.
We enjoy a strong cash balance and strong balance sheet. Our management and Board are continually evaluating opportunities to deploy our cash in a manner to achieve the best value for our stockholders. The share repurchase program provides us with another tool to achieve that objective.”
Agreement with Founder’s Family
Cal-Maine Foods has entered into an Agreement Regarding Conversion (the “Conversion Agreement”) with DLNL, LLC (“Daughters’ LLC”) and its members (the “Members”), who include Mr. Adams’ four daughters and Adolphus B. Baker, Board Chair (and Mr. Adams’ son-in-law). The Conversion Agreement was unanimously approved and recommended to the Board by a special committee consisting solely of independent directors.
Daughters’ LLC holds 4.8 million shares of the Class A Shares, representing 100% of the outstanding Class A Shares. The Class A Shares have ten votes per share and are convertible on a share-for-share basis into Common Shares, which have one vote per share. Generally, the Class A Shares automatically convert to Common Shares upon transfer to persons not related to the family.
The outstanding Class A Shares currently represent approximately 52.0% of the Company’s total voting power. In addition to the Class A Shares, Daughters’ LLC also holds approximately 1.1 million Common Shares, bringing the total voting power of the shares held by Daughters’ LLC to approximately 53.2%.
The Members have advised the Company that they are potentially interested in selling all or a portion of the Common Shares held by Daughters’ LLC, including shares that would be issued upon conversion of its Class A Shares. The Members indicated that they were willing to work with the Company towards achieving a smooth transition.
Pursuant to the Conversion Agreement, Daughters’ LLC has agreed not to convert any Class A Shares into Common Shares until after the effectiveness of the Restated Charter (as defined below). Daughters’ LLC has also agreed that if it converts any Class A Shares into Common Shares, it will simultaneously convert all (but not less than all) Class A Shares into Common Shares (the “Class A Conversion”). The Conversion Agreement does not require Daughters’ LLC to convert any Class A Shares or to sell any shares.
If the Class A Conversion does occur, the Company would have a single class of common stock outstanding with one vote per share, resulting in the following benefits to stockholders:
- A reduction in the concentration of voting power
- Simplification of the Company’s equity capital structure
- Better alignment of the voting rights and economic interests of all stockholders
- Broader appeal of the Company’s shares to investors, many of which prefer single voting class common stock structures
The registration rights expire on (1) the 12-month anniversary of the date of the Class A Conversion or (2) December 31, 2026, whichever is earlier.
In connection with the approval of the Conversion Agreement, the Board unanimously approved the adoption of the Company’s Third Amended and Restated Certificate of Incorporation (the “Restated Charter”), which was approved by Daughters’ LLC by majority written consent in lieu of a meeting of stockholders. The Restated Charter will become effective upon filing with the Secretary of State of the State of Delaware (the “Delaware Secretary of State”).
The Board also amended and restated the Company’s bylaws to align them with the Restated Charter. The amended and restated bylaws will become effective when the Restated Charter becomes effective. Because Daughters’ LLC has approved the Restated Charter by majority written consent, no further stockholder action is required at this time.
Among other things, the Restated Charter divides the Board into three classes of directors serving staggered three-year terms. Cal-Maine Foods expects the term of the first class of directors to expire at the 2025 annual meeting of stockholders.
Dolph Baker, Board Chair of Cal-Maine Foods, stated, “I am confident in the future of the Company, its strategy and its management team. The decisions to consider diversifying our family’s individual financial portfolios are personal decisions made in connection with our own respective financial and estate planning efforts.
The Board has asked me to remain as executive Board Chair at least through the Company’s 2027 annual meeting of stockholders, and I look forward to working with our Board and management as we continue to successfully execute our strategy.”Miller stated, “These arrangements will provide the Company with stability of governance and management during its transition from controlled to non-controlled company status and facilitate the Members’ portfolio diversification in an orderly manner in compliance with legal requirements.
Since 1986, Dolph Baker has contributed to the tremendous growth and success of Cal-Maine Foods. We are pleased that he will remain executive Board Chair at least through our 2027 annual meeting, and we will continue to benefit from his deep understanding of the Company’s operations, depth and breadth of experience and continued poultry industry engagement.”
About Cal-Maine Foods
Cal-Maine Foods is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs, including conventional, cage-free, organic, brown, free-range, pasture-raised and nutritionally enhanced eggs. The Company, which is headquartered in Ridgeland, Mississippi, is the largest producer and distributor of fresh shell eggs in the nation and sells most of its shell eggs throughout the majority of the United States.