Sandell Asset Management Corp. ("Sandell"), the beneficial owner of approximately 1.4 million shares, or 5.1%, of Bob Evans Farms, Inc. (NASDAQ:BOBE) ("Bob Evans" or the “Company”), sent a letter to the Company’s Board of Directors urging the Board to take a multi-step approach to unlock shareholder value at the Company.
The following are highlights of Sandell's opinions, which are presented in greater detail in its letter to the Board (the full text of which is set forth below) and White Paper presentation (available at: http://www.sandellmgmt.com/news/Enhancing_Value_at_Bob_Evans.pdf):
- Bob Evans is materially undervalued, as its stock price does not reflect the intrinsic value of its underlying assets.
- The Company suffers from a conglomerate discount, as it has two business segments: (1) a family-dining restaurant business, Bob Evans Restaurants, and (2) a packaged foods business, BEF Foods, and trades at a discount to other family-dining restaurant companies and packaged foods companies.
- The Company’s stock price does not reflect the significant real estate value of the Company’s 482 wholly-owned restaurant properties.
- The Company’s stock price has significantly under-performed other publicly-traded family-dining restaurant peers over the last 3-year and 5-year time periods.
- Bob Evans should take a multi-step approach in order to realize this value:
- Step 1: Separate its food products business (BEF Foods) through a sale or a spin-off to its shareholders.
- Step 2: Unlock the substantial real estate value embedded in its many owned restaurant properties through a sale-leaseback transaction.
- Step 3: Implement a large self-tender with most of the proceeds generated from Step 1 and Step 2.
- If Bob Evans were to pursue these steps, Sandell believes the Company could generate approximately $1.08 billion in proceeds and, as a hypothetical example, could use 75% of such proceeds to repurchase its shares at $58 per share while still leaving the Company with substantial cash on the balance sheet.
- A potential post-tender stock price of between approximately $73 per share and $84 per share, or an average price of $78.50 per share, could be justified.
Full text of the letter follows:
“September 23, 2013