Investor Calls for Transparent Process to
Maximize Shareholder Value
Sandell to Seek Shareholder Action by
Written Consent on Proposal to Separate BEF Foods and Bob Evans
Restaurants
Believes Value of BEF Foods May Approach
$1.2 Billion, Exceeding Enterprise Value of Entire Company
Sandell Asset Management Corp. (“Sandell”), a large and
long-time shareholder of Bob Evans Farms, Inc. (“Bob Evans” or the
“Company”), today released the following letter to the Board of
Directors (the “Board”) of Bob Evans noting its intention to
conduct a consent solicitation:
October 6, 2016
The Board of DirectorsBob Evans Farms, Inc.8111 Smiths Mill
RoadNew Albany, OH 43054
Ladies and Gentlemen:
As one of the largest shareholders of Bob Evans for a number of
years, you should by now fully appreciate the level of our
conviction in the significant underlying value of the Company, as
well as our unwavering commitment to seeing this value delivered to
all of the shareholders of Bob Evans. In spite of some distinct
corporate governance enhancements and other notable improvements
following the Company’s 2014 Annual Meeting, we have profound
concerns regarding the continued disconnect between the Company’s
stock price and the value associated with its two
independently-operated business segments, Bob Evans Restaurants and
BEF Foods. This disconnect has grown more pronounced in recent
months and the near-universal investor skepticism that surrounds
Bob Evans has forced us to take this public step of embarking on
the path of seeking shareholder action by written consent.
We are taking this step only after
exhausting every other reasonable, conceivable option available to
us, having expended significant efforts over the course of many
months seeking, but unfortunately failing, to have the Company
embrace greater public transparency.
While rudimentary, it first bears mention that “shareholder
value” for a publicly-traded company is indicated by its stock
price. This goes for all publicly-traded companies, and whether one
deems this standard fair or unfair, the economic reality of the
public markets is that a company’s stock price serves as the
ultimate benchmark in determining whether “shareholder value” has
been created or destroyed. And notwithstanding the presumed best
efforts of all members of the Bob Evans organization, shareholder
value on an absolute basis has actually been destroyed over the last three years, as the
Company’s stock price is 34% lower than three years ago, as the
following graph illustrates:
http://bob-evans-graphics.com/img1.html.
We can take no comfort in the many claims made by the Company
that it is focused on “increasing shareholder value” when the stock
price paints a starkly different picture.
And the Company cannot excuse this performance as consistent
with the industry, as the stock of Bob Evans has demonstrated
material and sustained underperformance as compared to peers. The
following graph illustrates how the stock price of Bob Evans has
underperformed a select peer group of restaurant companies by 41%
over the last three years:
http://bob-evans-graphics.com/img2.html.
Not only has the stock price of Bob Evans underperformed its
restaurant peers, but it has underperformed a select peer group of
packaged foods companies by an even greater amount, 94%, in the
same time frame, as illustrated by the following graph:
http://bob-evans-graphics.com/img3.html.
At its recent stock price of approximately $38 per share, the
market value of Bob Evans is approximately $750 million, and with
approximately $360 million of net debt, the enterprise value of the
Company is approximately $1.11 billion. This means that “the market is saying” the entire
Company, namely the operations of BEF Foods and Bob Evans
Restaurants, as well as the 300+ wholly-owned parcels of land and
buildings underlying the Company’s owned restaurants, is worth
$1.11 billion. We believe that
this is an affront to all financial sensibilities when one
considers that the value of BEF Foods alone may approach $1.2
billion. We have provided voluminous detail, backed up
by discussions that we have had with a number of highly-respected
investment banking firms, justifying a high valuation for BEF
Foods. Even the Company’s own CEO, Saed Mohseni, on the Bob Evans
FY2016 3Q earnings call, stated that, “If the food division was by
itself [it would be] probably trading to your point, 14.0x, 15.0x.”
Applying a 14.0x multiple to the $90 million of segment EBITDA that
BEF Foods generated in Fiscal 2016 suggests a value for BEF Foods
of $1.26 billion.
Unfortunately, even though BEF Foods may be worth more than the
enterprise value of the entire Company, the stock price of Bob
Evans continues to be overwhelmingly impacted by the Company’s
Restaurants segment. Furthermore, the few sell-side analysts who
follow the Company are primarily focused on the restaurant
industry, and there are no packaged foods analysts who follow Bob
Evans. It is painfully ironic that Bob Evans continues to be
treated as a restaurant company when the stock price of the Company
is actually reflecting a negative value for its Restaurants
segment. It should be very obvious that
the continued joinder of these two disparate operating segments
under one corporate umbrella has been destructive to shareholder
value as measured by the Company’s stock price, which we reiterate
is essentially the only metric that indicates the value of a
publicly-traded company.
It has long been our contention that investors will continue to
afford the stock of Bob Evans a material discount as long as the
Company refuses to formally commit to a separation of Bob Evans
Restaurants and BEF Foods. We believe that talk of waiting for the
Restaurants segment to turn around is a facile excuse for not
pursuing a separation. Furthermore, and irrespective of the
performance of the Restaurants segment, this line of thinking
blatantly ignores the persistent, pronounced and growing value
differential between publicly-traded restaurant companies, which
trade at around 8.0x EBITDA, and many packaged foods companies,
which trade at closer to 14.0x EBITDA.
Adding what would seem to be
indisputable evidence arguing in favor of a separation is the
recent confirmation by Mr. Mohseni himself of the absence of
meaningful synergies between the two businesses as well as the
affirmation of the true independence of these
businesses. This, coupled with the extensive analysis
that we have conducted based on advice received from some of the
most knowledgeable tax experts in the United States, convinces us
that there are several possible alternatives that the Company could
pursue to effect a tax-favorable separation of BEF Foods and Bob
Evans Restaurants.
Though we have sought to discuss these matters with members of
management and the Board of Directors on numerous occasions, what
now brings this issue to the forefront is the fact that the many
pronouncements by Saed Mohseni regarding the Company’s avowed
process of evaluating “all options for creating shareholder value”
are being completely discounted by the investment community.
Fueling investor skepticism is the lack of transparency regarding
matters as basic as the identity of the Company’s financial
advisors, as the only information that Mr. Mohseni has provided is
the hyperbolic claim that Bob Evans is working with “a top-rated
financial institution that guides some of the best minds in the
business.” Rarely, if ever, have we seen such investor skepticism
surrounding a company, with this skepticism heightened by the
opacity of the true intent of Bob Evans. So great is the level of
disbelief that certain sell-side analysts have suggested in so many
words that Bob Evans is engaged in a ploy to buy itself time, the
subtext being that Mr. Mohseni’s comments are cynical throwaway
lines meant to mask the fact that the Company has no intention of
pursuing a separation of its two businesses.
While we have taken Mr. Mohseni at his word, we are concerned
that this opaque process of evaluating “all options” may be far
from robust. Indeed, we have spoken with a number of investment
banking firms who have indicated that there would be many
tax-favorable separation options for the Company to pursue, with an
array of financial and strategic parties with whom the Company
could partner, and yet Bob Evans has not been proactive in engaging
in dialogue with these potential financial and strategic parties.
We find it hard to believe that any company that is truly
evaluating “all options” and is being advised by a firm that
“guides some of the best minds in the business” would conduct a
process that in our opinion is so apparently flawed.
All of which brings us to a very
important point which appears to be lost on the Board, namely the
fact that unless a company has publicly committed to pursuing
alternatives to maximize shareholder value and named its financial
advisors, there could literally be dozens of interested parties who
will not approach such a company to discuss a possible
transaction. Whether public expressions that Bob Evans
intends to look at “all options” to enhance value are genuine or
not, almost no financial or strategic party is going to proactively
approach Bob Evans and spend the time and money involved in seeking
to effect a transaction when the Company has not demonstrated a
full commitment to pursuing some form of a transaction.
While we have repeatedly sought to keep our dialogue with Bob
Evans both cordial and private, recent discussions with the Company
have proved frustrating. We, in fact, were prepared to sign a
non-disclosure agreement (NDA) with Bob Evans so that we could have
an open exchange that might assuage our concerns, but the Company
refused. With no conceivable options left, we are forced to take
our concerns public. We intend to ask our
fellow shareholders to take action by written consent and to vote
in favor of a very straightforward precatory proposal recommending
that the Board of Directors publicly commit to a transparent
process leading to the separation of BEF Foods and Bob Evans
Restaurants or another alternative that maximizes shareholder
value, naming the investment banking firm that will assist the
Board in this process.
While precatory proposals by their definition are non-binding,
it should be noted that in addition to voting on precatory
proposals, the Company’s organizational documents have real “teeth”
that provide shareholders a great deal of influence if the Company
ignores their wishes. Notably, shareholders have the ability to
remove Directors at any time without cause and can amend the
Company’s Bylaws with a simple majority vote, which hypothetically
could allow shareholders to remove certain Directors as well as add
new Directors. Because shareholders can take action by written
consent, all of this and more can be done essentially at any time
and well outside of the confines of an annual meeting.
Notwithstanding these very powerful tools available to
shareholders, it is our hope that the Company would not ignore the
will of the shareholders, making further action aimed at altering
the composition of the Board unnecessary.
While we would much prefer not to expend the significant amount
of time and effort involved in a consent solicitation, the
Company’s shareholders cannot afford the continued erosion of value
to persist. As recently as one week ago we had a discussion with
Mr. Mohseni and other members of the Board, at which time we made
one last-gasp attempt to avoid the needless distraction of a
consent solicitation. Indeed, we made
absolutely no demands as to what form the separation must take and,
in fact, we were quite clear that we are very open to another
alternative that would maximize shareholder value, even if such
alternative did not involve a separation. All we asked was that Bob Evans formally commit to
pursuing a transparent process, which is completely within the
control of the Company and could be effected
immediately.
Needless to say, we are monumentally disappointed that the
Company did not see fit to grant our very straightforward and
actionable request, which we find somewhat astonishing considering
that we are in an investment environment that demands greater and
greater transparency. While the Board can still take action at any
time to avoid the cost and distraction that a consent solicitation
is likely to engender, until such time we intend to proceed with a
solicitation with the ultimate goal of enhancing value for all of
the shareholders of Bob Evans.
Sincerely,
Thomas E. SandellChief Executive Officer
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161006005699/en/
Sandell Asset Management Corp.Adam Hoffman,
212-603-5814orOkapi Partners LLCBruce Goldfarb,
212-297-0722Lisa Patel, 212-297-0720orSloane &
CompanyDan Zacchei, 212-446-1882
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