Natural Foods Merchandiser

Gardenburger finances raked over coals

Gardenburger, the Irvine, Calif., maker of meatless burgers and other soy-based meals, is seeking a buyer. The company has contracted with Piper Jaffray to find a buyer, hoping to cook up a deal worth nearly $40 million, according to

The offering does not surprise Pat Turpin, a former food industry investment banker who now is a partner in Bayside Ventures, a holding company created to invest in emerging natural and organic food and beverage companies. "Because of Sarbanes-Oxley, it does not pay to be a small public company," Turpin said, referring to the 2002 corporate reform act. Gardenburger was formed in 1985 and went public in 1992.

Like most companies that go public, Gardenburger assumed it would raise money and grow from a small-cap concern to a company with a larger capitalization, Turpin said. For Gardenburger, that never happened. Its current market cap is less than $1 million.

Created by chef and self-described health nut Paul Wenner, the company started with just burgers and later expanded the line to include such items as meatless meatloaf, "chik'n" wings, and sweet-and-sour "pork" as meat alternatives became more popular. Nevertheless, the company has been subject to the whims of consumers. In 2004, the company's net sales totaled nearly $48.6 million, down from $54.6 million in 2002 and $61.1 million in 2000.

"When you are a very small public company, you have the worst of all worlds," Turpin said. "You have the disclosure [requirements] of a public company. You have the costs of going public, often as much as a million a year, but you don't get the benefits—Wall Street analyst coverage, a liquid market for your stock." In fact, Turpin said, such companies get caught in what he calls a liquidity trap. "It's more difficult to raise money as a small public company than it is as a private company."

It didn?t help that "competitors like Boca Burger took share away from them and then went on to sell to a larger strategic company with greater resources," Turpin said. Boca was purchased by Kraft in January 2000.

Gardenburger has publicly stated other reasons for its decline. "The popularity of protein-based low carbohydrate diets like Atkins and South Beach have positively impacted the sales of beef, pork and chicken, and have negatively impacted the meatless category," Gardenburger said in its 2004 annual report.

The company also cited loss of a major contract as a primary factor in declining sales. "Effective the second quarter of fiscal 2004, the Costco club stores ceased to require system-wide distribution of The Original Gardenburger product, which resulted in a $3.2 million, or 41 percent, decrease in sales to Costco," the 10-K revealed.

In 1993, Gardenburger's top management attempted to buy out all of the company's remaining shareholders, but the offer was rejected. Turpin said he expects a strategic buyer will come forward, rather than a financial buyer. A change in strategy would be beneficial, he said. "?This ought not to be a publicly held company, and will fare much better in private hands."

Gardenburger stock (GBUR.OB) was trading at 6 cents a share at the close of business Monday. Officials at Gardenburger did not return a phone call seeking comment.

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