Lancaster Colony Takes its Time Shedding Superflous Businesses

More than two years ago, Barington Capital Group started pressuring Lancaster Colony, an Ohio company that makes an odd amalgam of products including specialty foods, glassware, candles, and automotive accessories, to change its ways. And it has promised to do so -- but it has been taking its time.

Meanwhile, Lancaster's profits continue to shrink. Last week, it reported second-quarter earnings of $16 million, down from $17.8 million a year earlier. Sales were up, though, by 5 percent -- and by 12 percent in its foods business. CEO John Gerlach said the cost of sales will likely continue to grow into the next quarter.

Nonfood sales were off by 9 percent. That's where Barington comes in. The activist hedge fund, which owns about 6 percent of Lancaster, started asking the company in April 2006 to cast off the nonfood businesses, focus on specialty foods, and improve operations. Lancaster's response, or lack thereof, apparently wasn't good enough for Barington. By June 2007, it was sending letters to Lancaster complaining that, because Gerlach and his family members owned a controlling share, it was being run not as a public company, but "as a family-owned business," to the detriment of stockholders. Barington also reiterated its call for Lancaster to get rid of glassware and the rest.

OK, OK, said Lancaster. But a month later, Barington said it was investigating possible "mismanagement" at Lancaster, and demanded access to records. By October, the companies reached an agreement -- Lancaster would buy back some stock and appoint an independent, Barington-approved director, and Barington would back off, including on its earlier threat of a proxy fight to gain board seats for itself. And Barington would essentially stay quiet until the company's 2008 annual shareholders meeting, which will occur in the fall.

That could be an interesting meeting, depending on what happens between now and then. Lancaster said last week that it will complete a strategic review by September. The company has already shed nearly all of its automotive-accessories business, and in a conference call with analysts last week, Gerlach noted that the company is entirely out of manufacturing glassware products, though it is still distributing some. The shareholders meeting will probably be relatively peaceful if the company can get out of the candlemaking business by then.