NEW YORK (The Deal) -- Bob Evans Farms (BOBE) on Tuesday said it will not spin-off its food processing and packaged goods business even though a minority slate of four dissident directors on its 12-person board were elected by an activist who urged the company to do so. Shares slid more than 20% after the news.

According to a statement from the company's finance committee, a separation of its BEF Foods unit, "would not enhance shareholder value." Keeping it combined with the restaurant business made more sense, the statement added. Bob Evans said it worked with Lazard to review whether to keep BEF Foods intact.

The move comes after activist investor Thomas Sandell of Sandell Asset Management in September succeeded at installing four dissident directors in a proxy contest he waged at the New Albany, Ohio-based company.

Sandell fell short of getting the eight nominees he wanted installed to take over the board. Among other demands, Sandell urged Bob Evans to sell off BEF Foods. He also urged the company to enter into a significant sale-leaseback transaction to "realize" the significant real estate value in the business.

A sale-leaseback of real estate assets is still a real possibility. The company said it retained J.P. Morgan in the third quarter to assist it with a "continued evaluation of strategic alternatives" for its real estate. It added that there were various alternatives under consideration for all or a portion of the company's real estate, including a REIT spin-off or sale-leaseback. Lazard is also assisting on the real estate review.

Kim Opiatowski, an analyst at APB Financial, said a situation at rival Cracker Barrel Old Country Store (CBRL) - Get Report might be used as an example of a way to structure a sale-leaseback arrangement.

Cracker Barrel owns about two-thirds of its property, something that she believes would be a reasonable compromise in the Bob Evans situation. Even though the company said it would consider a REIT spinoff as part of its review, Opiatowski believed it was much more likely that they would consider a partial sale-lease back.

In December, after Sandell got his partial slate on the board, Bob Evans CEO Steven Davis stepped down. On Tuesday, Mary Kay Haben, the company's non-executive chairman, said the board is "pleased with the progress" of its CEO search committee and will provide an update as soon as it is warranted.

Bob Evans will be more likely to move ahead with a sale-lease back once a new CEO is installed, the analyst said.

She added that the company's announcement of $35 million in annual cost savings was consistent with what shareholders had been agitating for. However, the length of time for the program to be implemented -- three years -- would likely to be met with shareholder resistance.

Miller Tabak analyst Steve Anderson said the significant drop following the Tuesday announcement in after markets trading showed investor disappointment. "With the sale of BEF Foods off the table as well as the [selling, general and administrative] cost reductions taking longer than I would have expected the stock is down and a lot of the case for going long on the stock is gone now," he said.

Bob Evans' stock closed at $59.64 Tuesday and recently traded at $46.09, down 22.7%.

The company also said Tuesday that third quarter fiscal 2015 net sales totaled $357.2 million, up 5% compared to the prior year period. Same-store sales for the third quarter were up 3.8%.

Bob Evans also lowered its fiscal 2015 non-GAAP earnings per diluted share guidance to between $1.40 and $1.60 from between $1.90 and $2.10. The company also said that its restaurant turnaround efforts "are our #1 priority and are underway."

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