Alico Management Payment Smells Like Bad Fruit

Nov.15.13 | About: Alico, Inc. (ALCO)

One of more significant trends in the economy today is the interest by private investment companies in specific sectors relating to land and agriculture. The recent announcement of the purchase of a majority stake in Alico based in Fort Myers is an example of this trend.

Background

Alico (NASDAQ:ALCO) is one of the largest private landowners in the state of Florida, holding 130,800 acres spread over five counties. This land includes 11,000 acres of prime citrus-producing properties, as well as sugar cane fields, cattle ranch land and resource conservation areas. The company began in the rich farmlands of LaBelle, Florida in the late1800s, as the Atlantic Land Improvement Company. It quickly began to diversity into other areas including forestry, mining and oil exploration. The company also has holdings in resort property and land development holdings.

Under the leadership of Ben Hill Griffin, Jr., the company grew into an economic leader in the state. In the 1960s, it began to spin some holdings and focus on agribusiness. The company was in litigation for a considerable period throughout 1990s because of family disputes about the control of the business. A settlement was reached and the company has continued to thrive despite the current economic challenges.

Private Investor Interest
The deal is an all-cash purchase of the 51-percent majority stake in the company from the Atlantic Blue Group, a family-owned holding company. The buyer is 734 Agriculture, a private investment group headed by George R. Brokaw and Remy W. Trafelet, in partnership with a global food and agriculture investment firm called Arlon Group. The shares were purchased at $37 per share for a total price of $137.8 million. The deal will be completed by the end of the fourth quarter of 2013. The headquarters is expected to remain in Fort Myers, Florida.

The Management
At the end of the deal, Clay G. Wilson, with his 28 years of citrus-growing experience, will replace current CEO J.D. Alexander. Wilson also manages a number of other 734 Agriculture businesses. The board of directors will include Wilson, Brokaw, Trafelet and Ben Fishman and Henry Slack. The current chairman of the Alico board is expected to stay on as a board member.

Former Management Payment Seems Excessive

Based on a recent 8-K filing, "On November 6, 2013, JD Alexander tendered his resignation as Chief Executive Officer of Alico, Inc. (the "Company"), subject to and effective immediately after the closing (the "Closing") of the sale by Alico Holding, LLC (a subsidiary of Atlantic Blue Group, Inc.) to 734 Investors, LLC of all the shares of stock of the Company owned by alico Holding, LLC. The resignation shall not be effective unless and until the Closing occurs.

On November 6, the Company and Mr. Alexander entered into a Consulting and Non-Competition Agreement under which (NYSE:I) Mr. Alexander will provide consulting services to the Company during the two-year period after the Closing, (ii) Mr. Alexander agreed to be bound by certain non-competition covenants relating to the Company's citrus operations and certain non-solicitation and non-interference covenants for a period of two years after the Closing, and (NASDAQ:III) the Company will pay Mr. Alexander $2 million for such services over the life of the agreement.

The Consulting and Non-Competition Agreement will become effective immediately following the Closing. Mr. Alexander agreed, in a separate side letter with the Company, not to sell or transfer the shares that will be awarded to him pursuant to his Restricted Stock Award Agreement, net of any shares withheld to satisfy any applicable federal, state and local tax withholding obligations (other than to a family trust), for a period of two years after the Closing. Mr. Alexander also executed a general release in favor of the Company which releases the Company from any obligations to Mr. Alexander other than under the Consulting and Non-Competition Agreement, the Restricted Stock Award Agreement between the Company and Mr. Alexander, the Company's MSP Plan and Mr. Alexander's rights to indemnification."

Conclusion

While we are disappointed as shareholders in the huge payment to JD Alexander by the company, the new leadership team promises to give Alico a profitable start in this new phase of their business. Research, innovation and efficiency have always been possible at the company. The new management should be able to make savvy decisions to take advantage of the current economic conditions in agribusiness. We expect the company to do well in both the near and longer terms. We are positive on the lightly traded stock.

Disclosure: I am long ALCO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.