Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

It doesn't make much sense for Tootsie Roll Industries Inc. to be a public company if it doesn't behave like one. 

That's a thought that sprang to mind after short-seller Spruce Point Capital Management LLC released a report on Tuesday with a laundry list of reasons why the candy maker shouldn't be valued as highly as it is.  

Sweet Tooth
Tootsie Roll's shares have climbed over the years, but it has lagged the broader index since the crisis
Source: Bloomberg

At $2.3 billion, Chicago-based Tootsie Roll is both large and relevant enough to be included in indexes like the S&P 1000 and the Russell 2000. But unlike the majority of its peers, the company barely interacts with shareholders as it doesn't host earnings calls or investor days. (While neither are legally mandatory, earnings calls have become best practice across the board.) 

Tootsie Roll's lack of transparency -- which includes a two-page bare-bones release each quarter -- may help explain why no equity analysts cover it. That, too, is a rarity for a corporation of its size. In fact, if any company attempted to go public today intending to replicate Tootsie Roll's investor-shy approach, it simply wouldn't fly. 

Just like Ubiquiti Networks Inc., the target of another short-seller where the joint chairman-CEO role is filled by a majority-owner, Tootsie Roll is testing the limits of poor corporate governance. It has just four board members, three of whom have served for longer than 10 years. Perhaps it's time for a refresh, especially considering that unlike Ubiquiti, its high level of insider control hasn't helped its stock performance: Over the past five years, the company has delivered annualized returns of 10.8 percent including reinvested dividends, compared to the S&P 1000's 15.3 percent.

Scraping By
Tootsie Roll has just four directors, among the lowest in the S&P 1000
Source: Bloomberg

What's more, the average age of Tootsie Roll directors is 72, making its board the 12th-oldest among S&P 1000 companies, where the average is just shy of 63, according to data compiled by Bloomberg. 

Forever Young?
With an average age of 72, Tootsie Rolls' board is among the oldest in the S&P 1000
Source: Bloomberg
*Data available for 946 of the 1000 companies

The company's aversion to engaging with shareholders should lead it to consider going private, perhaps via a management buyout that could involve teaming up with a private equity firm. For now at least, though, its lofty valuation presents a hurdle.

Tootsie Roll trades at a trailing-12-month enterprise-value-to-Ebitda multiple of almost 20, a rich premium to other snack makers including Hershey Co. at 14 and Mondelez International Inc. at 15.3. Beyond that sticking point, buyout firms may steer clear of the situation if it's apparent that they'll have little ability to influence change or shake up Tootsie Roll's management, which may well be the case. 

Candy Crush
Tootsie Roll Industries is expensive compared to peers, which may deter buyout firms that could otherwise help take it private
Source: Bloomberg

If the Junior Mints maker remains public, as the shell of a public company that it is, things must change. Earlier this year, W.W. Grainger Inc. finally caved and joined the 21st century by adding a long-awaited question-and-answer session when delivering quarterly earnings. It's about time Tootsie Roll followed suit. If CEO, chairman and majority owner Ellen Gordon wants her company to enjoy the benefits of being public -- particularly, liquidity -- its investors deserve improved governance, disclosure and communication. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at