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Takeovers can be a shareholder's best friend. They always reward, with an instant and substantial premium. After all, the acquiring party must make a sweet enough offer to prompt the current owners to realize that "everything is for sale at the right price". Tender offers also enable long standing shareholders (actually they force them) to be set free, and to consider other investments, with their new found capital. The following two companies have seen virtually no appreciation in the past four years and are vulnerable to a change of ownership because of their relatively low market caps, age of their major shareholders and hidden real estate values.

Farmer Brothers (FARM): This iconic coffee company, known for 100 years for its restaurant coffee service, might be getting close to offering itself up to the auction block. Its two largest shareholders, Jeanie Farmer Grossman and Carol Farmer Waite, are daughters of the founder, Roy Farmer. Between them, they own 39.3% of the company. Add in the fact that they control the ESOP that retains a 16.4% stake, and it is clear they have enough power to lobby for an outright sale. The revelation that the women are now in their mid sixties and no longer receive dividend income from the company emphasizes even a stronger case for a sale. It makes perfect sense that these heiresses may finally want to cash out, especially with all the consolidation occurring within the space these days (the German conglomerate Joh A Benckiser recently acquired both Peets Coffee and Caribou Coffee for $1 billion each).

The company carries a very pristine balance sheet with $9.2 million in cash, $21 million in short term investments, and debt of only $19.9 million. Some analysts theorize that FARM could also be construed as a Real Estate Investment Trust, considering how much real estate it owns. It owns three plants/distribution centers in Torrance, Portland and Houston, four additional distribution centers, and 117 branch warehouses (55% of these are leased).

Operations have been slowly improving with the help of a new CEO, lower coffee bean prices and successful cost cutting efforts. Add in new sales contracts from Target, McDonalds, Walgreens, along with a rollout of a new ice tea line, and "Voila"-you have the recipe for an effective turnaround. In addition, FARM is now working against some unfavorable comps, so future earnings reports could show solid gains. It is forecasted to earn 13 cents on revenues of $127 million (a 5% increase) when it reports its 4th quarter results in August, and these relatively low expectations should be easy to surpass.

Fuel Systems Solutions (FSYS): The alternative fuel supplier has caught a flurry of good news lately that has rejuvenated its stock price: (1) natural gas prices continue to plummet, creating a bigger spread between the cost of gasoline/diesel and compressed natural gas, providing a significant incentive to convert to the cheaper alternative (2) the company received an order from AT&T to convert 600 Ford trucks to natural gas operation. (3) President Obama's climate plan was favorable to natural gas, and CNG is a cleaner burning fuel, which the green community will certainly embrace (4) further consolidation occurring in the sector, as Westport Innovations (WPRT) just acquired CLNE's gas vehicle division in a $25 million stock swap.

FSYS is susceptible to a takeover. Its CEO, Mario Costamagna, could be ready to cash in and monetize his holdings, especially considering he is already in his mid sixties. Costamagna is FSYS's largest single shareholder with a 16.6% stake. Its second largest holder is Kevin Douglas, with a 13.3% interest. Douglas is a also a major shareholder in Westport Innovations, another alternative fuel supplier.

FSYS is cash rich (it has $80 million on its books, including $12 million of German bonds), and is without debt. It is selling close to book value and is expected to earn $5 million on sales of $410 million in 2013. There are clues that a buyout could be in the works, as it recently cancelled its investment presentation at this year's Canaccord Genuity Growth Conference, and refuses to buy back its own shares.

Conclusion: The fact that both these companies offer unattractive earnings multiples, and their turnaround stories are painstakingly slow to progress, supports the case for a buyout scenario. Shareholders are frustrated and impatient, and could be open for some immediate gratification. When you realize that the majority owners in both these companies are well into retirement age, it is apparent that a sense of urgency dominates this line of thinking.

Source: Two Stocks With Takeover Written All Over Them