What About Bob? Bob Evans Farms Nixes Spinoff Idea But Will Explore Real Estate Options

While we are on the topic of Sandell Asset Management, it’s worth noting that firm suffered a setback earlier this month in one of its other major holdings, Bob Evans Farms (BOBE). The restaurant and refrigerated foods company dropped almost 20% after reporting a disappointing quarter and slashing rest of the year guidance due to weakness in its restaurant business. The company also said that it would not spin off its foods unit business and that it was hiring JP Morgan to explore options for its real estate. Sandell had been pushing the company hard for a spinoff and its sustained pressure led long time CEO Steve Davis to resign in December. Here are Mark Kay Haben’s, the company’s Non-Executive Chairman, comments on the matter:

1) Working with Lazard, it thoroughly reviewed the possibility of a separation of the BEF Foods business and concluded that a sale or spinoff of the segment, at this time, would not enhance shareholder value, and that continued focus on operations improvement would deliver greater benefits to our shareholders. Because the Company’s tax basis in its BEF Foods business is low, a taxable sale would be accretive only if it occurred at an EBITDA multiple significantly in excess of recent valuations for which food businesses have traded. With input from its outside advisors, the Finance Committee also concluded the annual costs and lost synergies that would result from a tax-free spin-off would be significant. Additionally, the need to allocate the Company’s debt between two smaller companies, and the one-time costs and significant management attention that would be required, make such a transaction not advisable at this time.

2) The Company has retained JP Morgan to work with the Finance Committee, in addition to Lazard, in reviewing the potential for real estate transactions or other changes to the Company’s capital structure. Working with these advisors, the Finance Committee is continuing to evaluate various alternatives with respect to all, or a portion of, the Company’s real estate assets, including a potential REIT spin-off, a sale-leaseback, and other real estate financing transactions

The company also announced some cost cutting initiatives and that its CEO search is still ongoing.

Sandell, which owns ~7% of the company, waged quite a battle last year against management and ended up controlling numerous board seats so this is somewhat of a surprising outcome. It will be interesting to see what the real estate review turns up as Sandell had numerous ideas about monetizing those assets as well. Some analysts, such as Miller Tabak’s Stephen Anderson, think the company might revisit the food unit spinoff idea after finding a permanent CEO, but that would be quite an embarrassing about face given the ‘conclusions’ from a ‘thorough review’. You never know though…

Disclosure: Author holds no position in any stock mentioned.