On October 6, 2016, Sandell Asset Management Corp. and
its affiliates (collectively, “Sandell”) issued by press release a letter to stockholders of Bob Evans Farms, Inc.
(the “Company”) announcing their intent to commence a consent solicitation with respect to the Company (the “Consent
Solicitation”). The foregoing summary of the press release is qualified in its entirety by reference to the full text of
the press release, a copy of which is attached hereto as Exhibit 1 and is incorporated by reference herein.
In addition, information regarding the participants
in a solicitation of consents of stockholders of the Company in connection with the Consent Solicitation is filed herewith as Exhibit
2.
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
New York (October 6, 2016)
- 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 Directors
Bob Evans Farms, Inc.
8111 Smiths Mill Road
New 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:
Source:
Bloomberg as of 10/3/16
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:
Source: Bloomberg as of 10/3/16
Note: Restaurant Peers include the
following family and casual dining (non-majority franchised) companies: BJRI, BLMN, CAKE, CBRL, DRI, EAT, RRGB, and TXRH
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:
Source: Bloomberg as of 10/3/16
Note: Packaged Foods peers include
BGS, CPB, CAG, HRL, LANC, LNCE, PF, and POST
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. Sandell
Chief Executive Officer
About Sandell Asset Management
Corp.
Sandell Asset Management Corp. is
a leading private, alternative asset management firm specializing in global corporate event-driven, multi-strategy investing with
a strong focus on equity special situations and credit opportunities. Sandell Asset Management Corp. was founded in 1998 by Thomas
E. Sandell and has offices in New York and London, including a global staff of investment professionals, traders and infrastructure
specialists.
SANDELL ASSET MANAGEMENT CORP., CASTLERIGG
MASTER INVESTMENTS LTD., CASTLERIGG INTERNATIONAL LIMITED, CASTLERIGG INTERNATIONAL HOLDINGS LIMITED, CASTLERIGG OFFSHORE HOLDINGS,
LTD., AND THOMAS E. SANDELL (COLLECTIVELY, THE “PARTICIPANTS”) INTEND TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”) A DEFINITIVE CONSENT STATEMENT AND ACCOMPANYING FORM OF CONSENT TO BE USED IN CONNECTION WITH THE SOLICITATION
OF CONSENTS FROM THE STOCKHOLDERS OF BOB EVANS FARMS, INC. (THE “COMPANY”). ALL STOCKHOLDERS OF THE COMPANY ARE ADVISED
TO READ THE DEFINITIVE CONSENT STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF CONSENTS BY THE PARTICIPANTS, AS THEY
WILL CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE PARTICIPANTS. THE DEFINITIVE CONSENT
STATEMENT AND AN ACCOMPANYING CONSENT CARD WILL BE FURNISHED TO SOME OR ALL OF THE COMPANY’S STOCKHOLDERS AND WILL BE, ALONG
WITH OTHER RELEVANT DOCUMENTS, AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV/.
INFORMATION ABOUT THE PARTICIPANTS AND
A DESCRIPTION OF THEIR DIRECT OR INDIRECT INTERESTS BY SECURITY HOLDINGS WILL BE CONTAINED IN AN EXHIBIT TO THE SCHEDULE 14A TO
BE FILED BY SANDELL ASSET MANAGEMENT CORP. WITH THE SEC ON OCTOBER 6, 2016. THIS DOCUMENT CAN BE OBTAINED FREE OF CHARGE FROM THE
SOURCE INDICATED ABOVE.
Contact:
Sandell Asset Management Corp.
Adam Hoffman, 212-603-5814
Okapi Partners LLC
Bruce Goldfarb, 212-297-0722 or
Lisa Patel, 212-297-0720
Sloane & Company
Dan Zacchei, 212-446-1882
Exhibit 2
SANDELL ASSET MANAGEMENT CORP., CASTLERIGG
MASTER INVESTMENTS LTD., CASTLERIGG INTERNATIONAL LIMITED, CASTLERIGG INTERNATIONAL HOLDINGS LIMITED, CASTLERIGG OFFSHORE HOLDINGS,
LTD., AND THOMAS E. SANDELL (COLLECTIVELY, THE “PARTICIPANTS”) INTEND TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”) A DEFINITIVE CONSENT STATEMENT AND ACCOMPANYING FORM OF CONSENT TO BE USED IN CONNECTION WITH THE SOLICITATION
OF CONSENTS FROM THE STOCKHOLDERS OF BOB EVANS FARMS, INC. (THE “COMPANY”). ALL STOCKHOLDERS OF THE COMPANY ARE ADVISED
TO READ THE DEFINITIVE CONSENT STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF CONSENTS BY THE PARTICIPANTS, AS THEY
WILL CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE PARTICIPANTS. THE DEFINITIVE CONSENT
STATEMENT AND AN ACCOMPANYING CONSENT CARD WILL BE FURNISHED TO SOME OR ALL OF THE COMPANY’S STOCKHOLDERS AND WILL BE, ALONG
WITH OTHER RELEVANT DOCUMENTS, AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV/.
INFORMATION ABOUT THE PARTICIPANTS:
Sandell Asset Management Corp., together
with the entities and individual listed below (collectively, the “Participants”), may be deemed to be participants
in a solicitation of written consents from the stockholders of Bob Evans Farms, Inc. (the “Company”) in connection
with the Participants’ intent to seek to have the Company’s stockholders take corporate action by written consent (the
“Consent Solicitation”).
The participants include (i) Sandell
Asset Management Corp., a Cayman Islands exempted company (“SAMC”); (ii) Castlerigg Master Investments, Ltd., a British
Virgin Islands company (“Castlerigg Master Investment”); (iii) Castlerigg International Limited, a British Virgin Islands
company (“Castlerigg International”); (iv) Castlerigg International Holdings Limited, a British Virgin Islands company
(“Castlerigg Holdings”); (v) Castlerigg Offshore Holdings, Ltd., a Cayman Islands exempted company (“Castlerigg
Offshore Holdings”); and (vi) Thomas E. Sandell, a citizen of Sweden (“Mr. Sandell”).
As of the close of business on October
5, 2016, the Participants may be deemed to beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as amended) an aggregate of 1,601,361 shares of common stock, par value $0.01 per share (the “Common Stock”),
including options to purchase 337,700 shares of Common Stock, constituting approximately 8.1% of the Company’s outstanding
Common Stock. The aggregate number and percentage of shares of Common Stock reported herein are based upon the 19,766,681 shares
of Common Stock outstanding as of August 26, 2016, as reported in the Company’s Quarterly Report on Form 10-Q, filed with
the SEC on August 31, 2016. Of the 1,601,361 shares of Common Stock beneficially owned in the aggregate by the Participants: (a)
1,601,361 shares of Common Stock (including options to purchase 337,700 shares of Common Stock) may be deemed to be beneficially
owned by SAMC; (b) 1,601,361 shares of Common Stock (including options to purchase 337,700 shares of Common Stock) may be deemed
to be beneficially owned by Castlerigg Master Investment; (c) 1,601,361 shares of Common Stock (including options to purchase 337,700
shares of Common Stock) may be deemed to be beneficially owned by Castlerigg International; (d) 1,601,361 shares of Common Stock
(including options to purchase 337,700 shares of Common Stock) may be deemed to be beneficially owned by Castlerigg Offshore Holdings;
and (e) 1,601,361 shares of Common Stock (including options to purchase 337,770 shares of Common Stock) may be deemed to be beneficially
owned by Mr. Sandell.
By virtue of investment management agreements
with Castlerigg Master Investment, SAMC has the power to vote or direct the voting, and to dispose or direct the disposition, of
all of the 1,601,361 shares of Common Stock (including options to purchase 337,700 shares of Common Stock) beneficially owned by
Castlerigg Master Investment. By virtue of his direct and indirect control of SAMC, Mr. Sandell is deemed to have shared voting
power and shared dispositive power with respect to all Common Stock as to which SAMC has voting power or dispositive power.