Activist investor Tom Sandell said Wednesday he was pleased by Bob Evans Farms (BOBE) move to sell its restaurant chain business for $565 million, a move that came after three years of public agitations.
However, the insurgent shareholder may not be done with his activist campaign. It is very possible that once the restaurant business deal is closed, Sandell and his Sandell Asset Management may soon start pushing for a sale of the company's sausage and side dish unit, BEF Foods, which will remain after the deal is consummated.
Bob Evans announced Tuesday that buyout shop Golden Gate Capital had bought its restaurant chain at the same time that the remaining Bob Evans packaged foods business will acquire Pineland Farms Potato Co. for $115 million.
The sale and purchase comes after Sandell had been pressing Bob Evans, in a three-year public insurgency, to separate its restaurant chain from the packaged foods unit, known as BEF Foods. However, Sandell's statement Wednesday and a presentation the fund produced in October suggest that there likely will be more on the activist fund's plate when it comes to Bob Evans in the coming months.
Sandell noted on Wednesday that the restaurant unit's sale may also allow for a tax-efficient acquisition of BEF Foods by "way of the purchase of the stock of Bob Evans at some point in the future." Also, an October presentation, Sandell issued a slide entitled "Separation (sale) of Restaurants followed by Acquisition of Parent Company Stock" suggesting that a sale of the restaurant business to a private equity financial sponsor could be followed by a sale of the packaged foods business.
The presentation also suggests that BEF Foods on a standalone basis could be valuable to a number of potential buyers including Tyson Foods (TSN - Get Report) , Hormel Foods (HRL - Get Report) and Pinnacle Foods (PF) .
Other potential bidders could include General Mills (GIS - Get Report) , Conagra Brands (CAG - Get Report) , Kellogg (K - Get Report) , Pilgrim's Pride (PPC - Get Report) and Post Holdings. (POST - Get Report)
Analysts agree that there are a number of companies that could be interested in buying the remaining packaged foods business, especially after the company completes its acquisition of Pineland Farms Potato.
Stephen Anderson, analyst at Maxim Group, suggests that larger food industry acquirers could make a play to buy the remaining Bob Evans business, once the restaurant sale is consummated, because such a deal would fit into "a larger theme of consolidation in the food products industry."
Anderson added that the BEF Foods is a higher-margin business that would be an attractive acquisition for a potential acquirer, and that Pineland Farms Potato's focus on environmental sustainability and local suppliers could on the margin make an acquisition of the overall remaining business more attractive. Anderson estimates that the BEF Foods business could be sold for roughly $62 a share, or $1.2 billion.
"The higher valuations have come from food companies that stress better-for-you options, as well as ones that stress sustainability and purchasing from local suppliers," Anderson said. "On the margin it could make it more attractive. It makes the case a little bit stronger for Bob Evans."
Anderson notes that a sale could happen soon or at some date down the road. "This is just chapter one," he said.
Already the investment looks like a win for Sandell, which acquired its initial stake in September 2013 at prices ranging from $55.29 and $55.94 a share. Bob Evans shares are up about 21% in late trading Wednesday at $58.05 a share. Sandell recently reported owning an 8.1% stake.
Bob Evans CEO, Saed Mohseni, who has a restaurant industry background, will continue to oversee the restaurant business once it is acquired by Golden Gate. Mike Townsley, president of the packaged foods,business will become Bob Evans CEO.
Bob Evans plans to use about $150 million of the sale proceeds to pay a special $7.50 a share dividend. With an 8.1% stake, Sandell is likely pleased with that result.
Sandell in 2014 succeeded at installing a minority slate of four dissident directors to Bob Evans' board in a contest that went the distance. Should he decide to try to put more directors on the board, in a move to press for a sale of the BEF Foods business, the deadline to nominate director candidates for the 2017 annual meeting would be May 17.