Bob Evans restaurant and BEF Foods
Sandell believes separating the restaurant and packaged foods businesses would unlock the true value of BEF Foods.

NEW YORK — Sandell Asset Management, one of the largest shareholders of Bob Evans Farms, Inc., released a letter Oct. 6 to the company’s board of directors stating its intent to conduct a consent solicitation. Previously, Sandell released a presentation detailing the investor’s argument for separating BEF Foods and Bob Evans Restaurants. The investor believes separating the restaurant and packaged foods businesses would unlock the true value of BEF Foods.

The letter, signed by Sandell chief executive officer Thomas E. Sandell, details how the investor is looking for more transparency from Bob Evans.

“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,” the letter said. “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.”

Despite the fact that Bob Evans reported improved earnings during the first quarter of fiscal 2017, Sandell continues to push for changes in the company.

On Aug. 31, during a conference call with financial analysts to discuss first-quarter results, Saed Mohensi, president and chief executive officer of Bob Evans Farms, iterated that all options remain on the table.

Saed Mohseni, Bob Evans
Saed Mohensi, president and c.e.o. of Bob Evans

“ … I think over the last seven months I’ve been very, very clear that all options for Bob Evans are under consideration by our board of directors,” he said. “And I believe that ultimately the board will make a decision that is in the best interest of our shareholders and create value for our shareholders.”

For the quarter ended July 29, Bob Evans Farms recorded net income of $9,162,000, equal to 46c per share on the common stock, and an increase compared with the same period of the previous year when the company earned $4,280,000, or 19c per share.

Sales for the quarter fell to $306,317,000 from $321,713,000 the previous year.

“BEF Foods began fiscal 2017 with continued strong volume growth during the first quarter,” Mr. Mohensi said. “Additionally, BEF Foods achieved market share gains in both its key side-dish and sausage product categories. We have completed the expansion of our Lima, Ohio, refrigerated side-dish plant and are now gearing up to meet peak holiday production, which begins during the back half of the second quarter. The Lima plant expansion provides the added production capacity that is critical to our ongoing efforts to gain additional points of distribution, particularly in West coast growth markets.

“While Bob Evans Restaurant sales remained challenged during the first quarter, we are encouraged by the moderating sales trend that began in July and continued into the second quarter, with quarter-to-date same-store sales of -2% through Aug. 29. We believe our efforts to enhance the guest experience through improved hospitality and food quality are gaining the attention of guests and improving our sales trend. Positive guest comments increased 24% during the first quarter, while negative comments declined substantially; a trend we believe will contribute to future sales improvements. Our focus during the second quarter will be the system-wide launch of our exciting new value-oriented, guest-friendly menu along with relentless attention to improving the guest experience.”

Despite reports from Bob Evans that the company is moving in a positive direction, Sandell is skeptical of the company’s ability to improve the stock’s value.

“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,” the letter said.

The letter detailed how the value of the company and stock remain in question and despite Sandell’s efforts to discuss concerns with Bob Evans’ leadership, the investor has been unable to see any progress.

“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,” the letter said.

The letter concluded: “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.”