The Board of DirectorsBob Evans Farms, Inc.Attention: Corporate Secretary3776 South High StreetColumbus, OH 43207
Ladies and Gentlemen:
Based on the previous discussions that we have had with Steven Davis and Michael Gasser, you may be aware that Sandell Asset Management Corp. (“Sandell”) is among the largest shareholders of Bob Evans Farms, Inc. (“Bob Evans” or the “Company”), with beneficial ownership of approximately 1.4 million shares, or 5.1%, of the Company. This, we point out, is significantly more than the collective outright ownership of all of the Company’s directors and officers combined. It is therefore clear that we have a great interest in seeing the stock price of Bob Evans better reflect the intrinsic value of the Company’s unique assets. We believe this value may range from approximately $73 per share to $84 per share, for an average value of $78.50 per share.
It was our understanding from our recent conversation with Mr. Gasser that he would discuss with the entire Board of Directors (the “Board”) the matters set forth in our August 5 th letter to him and we appreciate his efforts as Lead Independent Director to serve as a liaison between the Board and the shareholders. We are therefore somewhat encouraged by the Company’s incremental $150 million share repurchase “authorization” that was announced in Bob Evans’ August 19 th earnings release. That said, we are troubled by the fact that the same earnings release made no mention of other key matters that we addressed in our letter, many of which we repeat below.We believe that Bob Evans suffers from a conglomerate discount as a result of the Company’s two disparate business segments: a restaurant business, Bob Evans Restaurants, and a packaged foods business, BEF Foods. Due in part to this conglomerate structure, which has negatively impacted analyst coverage and ignores the different constituencies of restaurant and packaged foods investors, the Company has traded at a perennial discount to its restaurant peers, and at an even greater discount to companies in the packaged foods space. Given this history, it is particularly concerning to us that management continues to proclaim the “corporate synergies” and “cross-segment strategies” between Bob Evans Restaurants and BEF Foods. The benefits of continued integration between these two businesses do not seem compelling and we believe that management may be touting these perceived benefits to justify the preservation of their “empire” and their refusal to separate these two businesses. In addition, we believe that the market is not affording Bob Evans adequate value for its substantial real estate holdings, which include its 482 wholly-owned restaurant properties.