After 117 years of essentially operating as a family-run company, Santa Paula-based Limoneira Co. filed papers Feb. 12 to become publicly traded on the Nasdaq Stock Market.

Limoneira said it’s likely the largest lemon and avocado grower in the United States. It has begun moving into real estate development with projects such as East Area I, a tract of up to 1,500 homes near Santa Paula.

While the move to go public is a fundamental shift in corporate structure, Limoneira’s founding families will remain in control. Company leaders say the only big change will be that shareholders and the communities where the Limoneira develops real estate will have deeper insight into the firm’s holdings, operations and finances.

Limoneira has slightly more than 500 shareholders, with about 65 percent of shares held by the families who built the firm since its founding in 1893. Fifteen percent of the company is owned by Santa Paula avocado marketer Calavo Growers, and the remaining 20 percent of Limoneira’s shares are owned by outside investors and currently change hands in pink-sheets trading under the symbol LMNR.PK.

The pink sheets are an electronic price quotation and trading system for stocks that aren’t traded on major exchanges.
Becoming a fully reporting public company will increase Limoneira’s costs. But Chief Executive Officer Harold Edwards said he views those expenses as an investment in transparency.

“We’re very bullish on the future of our agribusiness because we fundamentally believe that over the long term, people want to consume citrus and avocadoes,” Edwards told the Business Times. “We also believe now is a good time for us to go out and tell our community development story as the real estate markets in the county and around the country continue to heal.”

Limoneira also plans to ask shareholders to approve a 10-for-1 stock split that would increase the number of shares outstanding from 1.1 million to 11 million. No shareholder’s relative stake would change, but the price of individual shares would drop to the $15 range.

The firm’s overall market capitalization — the value of all of its outstanding stock — has been between $200 million and $300 million in recent years. If all goes as planned, Edwards said, Limoneira could be trading on the Nasdaq by mid-May.

Trading on a national exchange will require Limoneira to disclose information a closely held firm wouldn’t have to, such as the $300,000 that Limoneira has invested in the Formula One racing career of Charlie Kimball, the son of board member Gordon Kimball.

Charlie Kimball is required to pay back the investment, according to Limoneira’s filings. He’ll pay no interest if he decides to go to university but will have pay back double Limoneira’s money if he becomes a full-time salaried professional racer. According to a December release from the Indy Racing League, Charlie Kimball came in 10th in the Firestone Indy Lights championship as a rookie in 2009 and has signed with AFS Racing/Andretti Autosport for the 2010 season.

Executives of a fully public company also have to act differently. “How you handle yourself in disclosing information, even at a cocktail party, has to be carefully thought out,” said Sung Won Sohn, an economics professor at California State University, Channel Islands, who has served as a public company CEO and now sits on the board of clothier Forever 21, a private firm.

Edwards said he expects most of the trading to occur among the 20 percent of shareholders who are outside investors. He said that Limoneira has good relationships with its biggest creditors and has no immediate plans to tap the public markets for capital by creating and selling new shares.

“The cost of equity capital is pretty expensive compared to debt capital,” Edwards said. “Currently we’re not capital constrained. The liquidity of our company is strong.”

Edwards said it also may take some time for investors to get used to the agribusinesses’ cash-flow swings, where harvest quarters bring revenue surges and bumper crops or bust years can distract from the company’s core condition. Limoneira swung from a $3.2 million profit in 2008 to a $3.1 million loss in 2009 even though little fundamentally changed about the firm.

“In 2008, we had our one of our best earnings and cash-producing years ever, and in 2009 we had one of the worst,” Edwards said. “Neither was driven by the economy. Both were driven by agricultural production.”

Becoming public is likely to add hundreds of thousands of dollars in costs for Limoneira. Though the increase in expenses to comply with regulations varies with how complex a business is, it always requires either hiring employees or consultants who are familiar with public-company finance.

“The amount of bureaucratic paperwork necessarily is huge,” said Sohn, the economist. “There are all kinds of government rules, restrictions and regulations you have to abide by. It’s very onerous.”

Limoneira will have to comply with new accounting standards and spend more on legal fees, said Jeff Hass, a partner in public-company accounting firm Farber Hass Hurley in Camarillo.

“The cost of an audit almost doubles,” Hass said. “The attorneys have to review all the filings. Legal fees can easily equal audit fees.”

But some going-public costs go down after the first year or two. To comply with regulations, Limoneira will have to design internal financial controls, document them and then test them year after year. For many common-sense controls, the costs go down after designing and documenting them.

“The first year of compliance will probably be their most expensive,” said Peter Iannone, a director at CBIZ Accounting, Tax & Advisory Services in Oxnard. “That first year of documenting those controls is 80 percent a one-time thing.”

Edwards said Limoneira thinks the expense is well-justified.

“Yes, it is a cost, but we feel the benefit of greater transparency is a worthwhile investment,” Edwards said. “Our shareholders will have a much better view of what our company is doing.”

• Stephen Nellis can be reached at snellis@pacbiztimes.com

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