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Sandell Responds To The Misinformation Propagated By Bob Evans

Stocks in this article: BOBE

Sandell Asset Management Corporation (“Sandell”), one of the largest shareholders of Bob Evans Farms, Inc. (“Bob Evans” or the “Company”), has released a new presentation entitled “Refresh Bob Evans - Addressing the Company’s Misinformation,” which can be found at www.refreshbobevans.com.

In this new presentation, Sandell highlights many aspects of the Company’s frequent provision of misinformation, including:

  • The Company’s cherry-picking of pricing dates, which correspond with Sandell’s acquisition of shares in the open market and behind the scenes efforts to encourage change at the Company from April through September of 2013, in order to obscure the Company’s dramatic stock price underperformance both prior to and subsequent to this period. We remind all shareholders that the Company’s stock price performance has been nothing short of abysmal, as Bob Evans has under-performed its own selected peer group, as well as many other peers, over a 1-year, 3-year, 5-year, and 10-year time period.
  • The attempt by Bob Evans to camouflage the abysmal returns realized by the Company’s $120 million Farm Fresh Refresh program by presenting relative rather than actual Year-One same store sales data and conveniently neglecting to present same store sales data in Year-Two for stores that had been remodeled. Furthermore, according to the Company’s own guidance, same store sales in 1Q FY2015 are expected to decline by -2.5% to -3.0%, a period when the entire Company's restaurants have been refreshed and winter weather can in no way be blamed.
  • The Company’s shameful attempt to claim its SG&A expense as a % of sales are "more in line with the peer average" by virtue of Bob Evans distorting the ratio of SG&A expense as a % of sales by excluding costs associated with BEF Foods in the numerator while including BEF Foods sales in the denominator, a ploy that in our opinion insults the collective intelligence of the Company’s shareholders.
    • Sandell believes it particularly important to note that the Company’s SG&A expense as a % of sales is inflated at both Bob Evans Restaurants as well as BEF Foods. To wit, SG&A expense as a % of sales at the Bob Evans Restaurant segment, both exclusive and inclusive of advertising expense, is far in excess of peers. SG&A expense as a % of sales at BEF Foods is more than double that of its two primary competitors, Hillshire and Hormel. We further highlight the fact that the Company does not disclose corporate overhead but rather allocates it as it sees fit between the two segments. We believe this may explain why the Company has steadfastly refused to separate BEF Foods, as the Company’s bloated corporate overhead would appear even more inflated at a Company with a smaller revenue base.
  • The repeated attempts by Bob Evans to pass off its stale, entrenched, and conflicted Board of Directors as “independent” when the majority of current Directors on the Board have numerous connections both to Steven Davis as well as amongst themselves. We note that the majority of current Directors authorized an improper Bylaw amendment which was only repealed after two shareholders filed suit in Delaware.
  • We highlight the fact that six Directors up for election (Davis, Gasser, Ingram, Krueger, Mallesch, Williams) and eight Directors currently on this Board (Corbin, Davis, Gasser, Ingram, Krueger, Lucas, Mallesch, Williams) since FY2008 presided over a shocking destruction of value at Mimi’s Café, apparently subjecting the business to a review each and every quarter for over 20 consecutive quarters while Mimi’s suffered five straight years of same store sales declines before deciding to sell it in FY2013 for a loss of $157 million, or 86% of its purchase price. We note that the new President of Mimi’s put in place by its new owners cited “mismanagement from its previous owners” as the reason behind Mimi’s decline.

Our Nominees

Despite what the Company claims, the Bob Evans 2014 Annual Meeting is not about any specific transaction. It is fundamentally about the credibility of directors to represent the best interests of shareholders.

Bob Evans needs fresh, highly-qualified Board members who are able to provide effective management oversight and bring new perspectives and ideas to the Company. This is why we have proposed a slate of eight director nominees (the “Nominees”) who represent forward-thinking, truly independent executives – none of whom is affiliated with Sandell – and possess a diversity of background and experience that will allow the new board to effect change that we believe would deliver significant shareholder value:

  • Doug Benham, the former President and CEO of Arby’s Restaurant Group
  • Charles Elson, the Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware
  • David Head, the former President and CEO of O’Charley’s Inc.
  • Steve Lynn, the former Chairman and CEO of Sonic Corporation
  • Annelise Osborne, a Senior Credit Officer at Moody’s Investor Service
  • Aron Schwartz, a Managing Partner at ACON Investments, L.L.C.
  • Michael Weinstein, the former CEO of Triarc Beverage Group (Snapple Beverage Group)
  • Lee Wielansky, the Chairman and CEO of Midland Development Group

We note that of these eight Nominees, three are former CEOs of large restaurant companies with decades of relevant industry experience, and each of these eight Nominees possesses a skill set that we see as necessary to deliver value to the stockholders of Bob Evans. We believe that these Nominees are significantly more qualified than the entrenched legacy Directors the Company is proposing as part of its slate, as well as the three Directors recently added by the Company, none of whom have any meaningful restaurant industry experience.

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