An interesting story not likely to be heavily covered today is news that the board of Cal-Maine Foods (NASDAQ:CALM), an egg producer based in neither California nor Maine, changed its mind and decided not to take itself private. Shares of the Jackson, Miss.-based company rose sharply in morning trading as a result.
Majority-owned by Founder, Chairman, and CEO Fred Adams Jr., Cal-Maine produces, cleans, grades, and packages fresh eggs and then sells them to retailers including Wal-Mart (NYSE:WMT) and Texas grocer H-E-B. As one of the biggest players in the business, Cal-Maine operates from an increasingly strong position as egg-laying capacity has consolidated in recent years. The company is banking on this as a driver of reduced cyclicality in egg pricing down the road.
Cal-Maine has delivered slow, steady, market-beating results over the last 24 months. In mid-August, however, it announced plans to go private. Though its stock ticked upward between then and July (when the company said it was considering going private), the shares hardly moved when the plans were actually announced -- no doubt because Adams offered a slim discount to the shares' market value at the time.
Then a funny thing happened: Cal-Maine released fiscal Q1 financial results at the end of September. The news -- that strong egg demand and shortened supply was boosting egg prices -- started pushing the shares up again, to as high as $11 per share at last night's close. (They were up another 20% today at last check.)
Yesterday, Adams decided things were too rich for him: "The current unanticipated level of shell egg prices, which are at near record highs, and recent increases in the price and activity in the company's common stock," he said, "make it extremely difficult to establish a share price which ... would be fair to [all] shareholders."
Sometimes going private makes sense, especially if you don't need access to the public markets to obtain capital -- Cal-Maine's cash flow statements look pretty good lately -- and believe a company is undervalued. (We discuss the difference between private and public companies in Fool's School.) But strong corporate performance seems to have made the discussion academic. Adams, it seems, got what he wanted even more quickly then he'd hoped.
Dave Marino-Nachison can be reached at [email protected].
