Several Public Firms Operate Like Private Enterprises.

TORRANCE-based Edelbrock Corp., a seller of high-performance automotive parts, has been a public company since in 1994.

And its stock, which hit a peak slightly north of $22 a share in the-fall of 1998, as of last week was trading for around $10 on the Nasdaq.

But the company's managers do not feel under the slightest bit of pressure from Wall Street. That's because Edelbrock, like several other companies throughout Los Angeles, is technically public but essentially privately held.

"Now, because the market is tight, we're not getting the (market) value we should get," said Chief Operating Officer Jeffery L. Thompson. "(Going private) is one of several considerations. We'll make a decision down the road."

But the "we" in this case is something of a euphemism. The decisions -- at least the important ones -- are made by the Edelbrock family, which started the company in 1938. O. Victor Edelbrock is the chairman, president and chief executive. His wife Nancy is the company's treasurer, and is a director on the board. Daughter Cathleen Edelbrock-Ford is vice president of advertising and also a director. And the family owns 51 percent of the stock. And when the company's profit-sharing plan is factored in, insiders own two-thirds of the outstanding shares. Any decision on what will happen to Edelbrock Corp. is clearly up to the Edelbrocks.

It's one of several local public companies run by an individual or a group that controls enough of the stock to make all of the decisions in-house. They might do just as well, or better, as private entities but they stay public. Few if any analysts cover them, and they attract little interest from outside investors. Yet public they remain, to some disdain.

"Frankly, a lot of these companies have no business being public," said Lloyd Greif, president of local investment bank Greif & Co. "All their stocks are thinly traded, and get no attention. They have to pay the cost of public filings and the legal costs associated with that. They're living in a glass house, where if you're a private company you can run silent, run deep. (And) it's harder and harder to be a small-cap company in a large-cap marketplace."

That's not to say that all family-controlled L.A.-based public companies are underperforming. La Canada-based Sport Chalet Inc. has been posting strong earnings growth and its stock price, at $8.25 a share last week, is about double the $4 level it was stuck at much of last year. And that performance comes despite the fact that about two-thirds of the regional sporting goods chain's outstanding shares are owned by 75-year-old company founder Norbert Olberz.

These kinds of companies, especially the ones that are run as personal fiefdoms by individuals or families, often generate more curiosity because it's even harder to fathom why they stay public.

"You have to deal with shareholders who might try and elbow in on things, and questions from the press," noted Harold Harrigian, managing director at investment bank Duff & Phelps LLC. "(Remaining public) may be ego satisfaction, but for a practical matter, I don't think there's any reason to do it."

Family run

Nevertheless, some do. Perhaps the Los Angeles company that springs to most people's mind when the subject comes up is Farmer Bros. Inc. The Torrance-based coffee wholesaler has long been the dominion of 84-year-old Chairman Roy F. Farmer and son Roy E. Farmer, president and chief executive. The Farmers control just under 60 percent of the stock and its corporate policy reflects the certainty of total control: no investor or corporate relations department. Media scrutiny is unwelcome.

"Executives don't give interviews," said a woman who identified herself only as a secretary named Joyce. "Ever."

Traded on Nasdaq, the company's stock shot up to an all-time high of $256.52 per share in February, in part due to rumors the company is considering taking itself private, and last week it was trading around $205. But that interest is somewhat deceiving. Volume is very light, at around 1,000 shares a day. No analyst covers the company. And there's no way to pry out information.

"I called them a few years ago to put them in touch with some investors I knew who might be interested," Duff & Phelps' Harrigian said. 'They never called me back."

Of course, with its stock as high as it is, at least there's some justification for Farmer Bros. staying public. For other personal fiefdoms, the justification might be harder.

Dick Clark Productions Inc., founded and run by Mr. American Bandstand himself, traded as high as $20.91 per share in late 1999. Last week, it was at $10.33. At least that's the price it was being offered at on April 25, but not a single share in the entertainment/restaurant company was bought or sold that day. Given that less than 1 million shares are available to be traded, it naturally puts a damper on investor interest.

"I've owned it in the past," said Bill Mason, principal at Cullen, Fortier Asset Management in Woodland Hills and a professor at Pepperdine University. "I think (Clark) does a nice job. But it's not in the interest of my clients to be a minor shareholder in that operation."

Nevertheless, Mason disputes that assertion that no benefit comes from family-owned businesses going public.

He points out that for companies that pass control on from generation to generation, going public means avoiding estate taxes of more than 50 percent. Having a market valuation to the shares that are passed on also avoids any sticky issues of just how much the estate may be worth.

"Of course, Dick Clark doesn't get older," Mason said of the famously youthful-looking septuagenarian.

Joking aside, one major reason Edelbrock went public was due to estate taxes, its COO said.

"In case something would happen to Mr. & Mrs. Edelbrock, we needed some liquidity for the stocks for estate reasons," Thompson said. "Otherwise, there would be a huge tax bill."

Mason also downplays any negative scrutiny that might incur from outside investors.

"What's the risk? As long as you have control, you don't have reason to distort the numbers because it's your money," he said.

And there are family-controlled companies that say they welcome the pressure of public scrutiny.

"I think it creates an atmosphere where we are required to perform that wouldn't exist if we were a private company," said Douglas Virtue, corporate executive vice-president of Virco Manufacturing Corp., which was started by his grandfather in 1950 and has been public since the mid-1960s. The Virtue family, including Douglas' father Robert, Virco president and CEO, controls just under 50 percent of the stock, which is followed by only one analyst and was trading thinly last week at around $10 a share.

Virtue acknowledged that the demands of being public include living up to shareholder expectations. But he sounds the refrain of the vested interest looking out for the ongoing viability of his firm.

"A family orientation does move you toward a long-term investment outlook," he said. "We're not a quarter-to-quarter investment; we're not an annual investment. A better window is 5 to 10 years."

Those are admirable sentiments, but ones not likely to attract a lot of enthusiasm from Wall Street. Greif predicts that a number of small-cap companies are increasingly likely to try to go private, given the lack of interest from the public markets. The families in some cases may not be able to muster the cash needed to finance the privatization.

"The simple fact is that if (such companies) had to do it all over again, they wouldn't do it," Mason said. "But it's not worth the trouble to undo it."