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Why put all your eggs in the same basket, when you can put them in someone else’s? That is the message from the four daughters of Fred “Big Chicken” Adams, collectively the family behind the biggest US egg producer.
Adams senior founded Mississippi-based Cal-Maine Foods in the 1950s. The listed egg farmer has seen its fortunes boosted by the ongoing American egg shortage. Since the start of 2024, shares in Cal-Maine have jumped more than 50 per cent, implying a market capitalisation of $4.4bn. Egg prices have soared from their usual price of under $2 a dozen to more than $5 this year.
By the time the avian flu that has crushed egg supply finally recedes, and Cal-Maine’s profits normalise, the Adams heirs may have flown the coop. Last week the company said the family’s super-voting shares would be converted into ordinary shares and then registered with the Securities and Exchange Commission so they could be sold into the market.
At the same time, Cal-Maine said it would use its swelling cash balance to buy back $500mn of company stock, with any purchases of Adams family shares to be approved by independent directors. The daughters’ total holding, about a tenth of the economic interest, is worth more than $400mn. The company cites “estate planning”, “diversification” and “philanthropic” intent.
There are faster ways for family owners to check out, such as selling the company at a premium. The Adams clan’s chosen alternative seems somewhat less friendly to ordinary shareholders, especially if the company uses its coffers to buy their shares at flu-stoked highs. Cal-Maine will also implement a staggered board — where only a few directors are up for re-election each year — that limits scope for activist shareholders.
Because egg demand is fairly inelastic, high prices do little to dent demand, and mostly fall through to Cal-Maine’s bottom line. Profit has proved erratic, though, partly because of one-offs like the $20mn charge the company took over an antitrust lawsuit a few years back. That in turn impacts on the de facto fixed ratio of one-third of earnings the company pays out in dividends.
Freed from the family’s control, Cal-Main may attract a buyer. After all, it is the largest egg producer in the US; its biggest customer is supermarket giant Walmart. True, private equity firms might be wary of betting on eggs while they remain such a volatile commodity; a strategic rival might elicit competition concerns. But whenever a family relinquishes its grip on a large, storied company with sizeable market share, M&A bankers start running the rule on potential takeovers. Let the scramble begin.
