Major shareholder of Bob Evans Farms urging company to split its restaurant and foodservice business, sell and lease back its real estate holdings to 'unlock shareholder value'

COLUMBUS, Ohio , September 25, 2013 () – A major shareholder of Bob Evans Farms is urging the company to split its restaurant and food-service businesses, and to sell and lease back its substantial real-estate holdings to "unlock shareholder value."

Bob Evans "has traded at a perennial discount to its restaurant peers, and at an even greater discount to companies in the packaged foods space" because shareholders undervalue the company's assets, New York hedge fund adviser Sandell Asset Management said in a letter this week to board members of the Columbus food company.

Sandell's solution? Split up the company.

"The best way to create value is to sell BEF Foods," which is Bob Evans' food-service business, said Thomas Sandell, the asset manager's CEO.

Many shareholders prefer "pure plays" -- companies that operate in a single market segment. Bob Evans operates in both the restaurant and the food-service businesses, so its stock sells at a " conglomerate discount," according to Sandell.

Bob Evans executives, who have been building their company's value by remodeling restaurants, emphasizing bakery and carryout food, and acquiring complementary food-service businesses, see such a strategy as a positive thing.

Their company's food-service business makes items such as pork sausage and mashed potatoes mostly for retail stores. It also, however, does a lot of commissary work for its restaurants, lowering their operating costs.

It's what some companies consider a "portfolio effect," said John Gordon, restaurant analyst and principal at Pacific Management Consulting Group in San Diego.

"After you develop your restaurant business, you can take what you've developed and find other ways to use it," Gordon said.

Bob Evans wasn't saying much yesterday beyond acknowledging having received Sandell's letter.

"We always welcome shareholders to express their views, and management and the board of directors regularly take into consideration shareholder concerns and suggestions," said Scott Taggart, Bob Evans' vice president of investor relations.

Sandell also wants Bob Evans to sell and lease back its 482 company-owned restaurants, as some peers such as Cracker Barrel have done. In addition to spinning off or selling the food-service division, that would give Bob Evans more than $1 billion to buy back shares from existing shareholders at a slight premium.

Sandell's firm, which recently added to its Bob Evans holdings for between $55.29 and $55.94 a share, is thinking the company could buy its shares in a "self-tender" transaction for more than $60 a share.

"We feel the stock is worth $80" a share, Sandell said. His firm owns 1.4 million Bob Evans shares, or 5.1 percent.

Self-tenders sometimes are used as a defense against hostile takeovers.

"The only reason I mention the takeover possibility is because there's been a lot more chatter from the likes of Sandell in the last month or so," said Stephen Anderson, senior restaurant analyst for Miller Tabak & Co.

The chatter insinuates that if Bob Evans management doesn't sell its food-service division or real estate, then someone else will, Anderson said.

"I have not heard of a specific deal," he said. Bob Evans executives "have been doing the right things all along, I think."

Bob Evans shares rose less than 1 percent to $57.43 yesterday. The shares are up 43 percent for the year.



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