Bob Evans Faces A Proxy Fight


Three months is apparently long enough for Sandell Asset Management.

The investment firm, which owns 5.1 percent of shares Bob Evans Farms, said in a letter to the board this morning that it has retained a proxy advisory firm, MacKenzie Partners, to advise on the next step in its push for major changes at the Ohio-based family dining chain. Among its options: to have shareholders vote on making changes at the company.

Sandell, in a release this morning, cited the board's "troubling history of inaction" and its "failure to promptly consider, let alone implement" any of Sandell's ideas, which were first made public in September.

In its letter, Sandell's primary complaint is the board's "lethargic approach to taking action to enhance shareholder value" and its failure to "promptly give serious consideration" to the recommendations—which include a split of the company's restaurant and food businesses, a sale-leaseback deal and a massive share buyback program.

Steve Davis, Bob Evans CEO, told Sandell that the board would review the ideas "in due time," which apparently didn't sit well with Sandell's CEO, Thomas Sandell. "The board has had over three months to consider the salient points we had highlighted regarding actions we believe would deliver significant value to the company's shareholders," Sandell wrote. "Three months can easily be characterized as 'due time.'"

All of those recommendations come right from the activist shareholder playbook. But the most interesting is the proposed food business spinoff. The business is valued at $560 million. Bob Evans would spin the company off in an IPO, according to Sandell's proposal, and it would keep 19.9 percent of that company. Such an IPO, he suggested, would likely be popular given the dearth of publicly traded packaged food companies.

Still, spinoffs are common targets for activist investors seeking changes, as noted by the current controversy at Darden Restaurants. So is this: sale-leasebacks. In his letter, Sandell said he knows of two large real estate investment firms interested in doing a deal with Bob Evans, one of which has tried, to no avail, to get an audience with the company. Such a deal could be executed within 60 days. The funds would then be used to pay for a $575 million share buyback.

These steps, Sandell writes, could help Bob Evans shares rise to $80.

In his letter, Sandell takes one stab at Bob Evans' failed deal for Mimi's Cafe, which the company bought in 2004. "The vast majority of current board members had presided over the persistent poor results at the Mimi's Cafe restaurant chain for almost six years before finally taking action to sell Mimi's at a $133 million loss in February 2013," Sandell wrote.

Sandell also expresses concern over the outside advisors Bob Evans apparently uses to analyze proposals, though it is uncertain who these advisors are. If Bob Evans were truly serious, Sandell wrote, it would hire an investment banking firm. "As it now stands, we have no comfort whatsoever in any 'outside' advise that the board is purportedly receiving," he wrote.

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