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Bob Evans to spin off, sell up to 60% of real estate

Company may be open to separating restaurant, packaged food businesses

Bob Evans Farms Inc. plans to sell a significant portion of its real estate, the company said late Thursday, a move that has been expected since last fall, when an activist investor won a significant number of seats to its board.

The company also suggested that it is still open to separating its restaurant and packaged food businesses. Bob Evans has 564 restaurants.

Bob Evans did not disclose how many locations and what kind of transaction the move would entail. The company said it may pursue a sale-leaseback of its locations, or it may convert its properties into a real estate investment trust, or REIT. Activist investors have estimated the real estate to be worth up to $700 million.

The decision will depend on the performance of the company, market values for the real estate, the performance of REIT stocks and economic conditions, Bob Evans said.

“We expect to conclude the assessment of alternative paths for our restaurant real estate over the next several months,” Bob Evans CFO Mark Hood said in a statement. “Either of the forms of a transaction is expected to enable the company to reduce its investment in lower-return assets.”

Additionally, “We expect that in structuring a transaction we would seek to maintain our flexibility to pursue a separation of the foods and restaurant at some point in the future if advisable at that time,” Hood said.

Bob Evans owns 460 properties, KeyBanc Capital Markets analyst Christopher O’Cull said in a note, so the company would sell 140 to 280 locations.

The move comes weeks after Bob Evans retained CBRE to sell the company’s headquarters, as well as two food manufacturing facilities, in a sale-leaseback deal.

It also comes months after the company said it had opted against spinning off BEF Foods, its packaged foods division, “at this time.”

Activist investor Sandell Asset Management pushed both the real estate spinoff and the sale of the packaged foods division in a proxy fight last year. Sandell won four seats to Bob Evans’ 12-person board in August 2014.

Reaction among investors was strong. Bob Evans’ stock rose more than 3 percent Friday on the news.

However, analyst responses were mixed. O’Cull said the company will likely pursue a REIT, because a spinoff would minimize its tax bill in a real estate move. But that option is available for only some restaurant chains, he said. And he questioned whether a Bob Evans REIT “would be a compelling investment idea to warrant a premium valuation.”

If a REIT did not work, O’Cull suggested that the tax consequences of a sale-leaseback would be “too significant” for the company.  

But Miller Tabak + Co. analyst Stephen Anderson upgraded Bob Evans to a “Buy” rating on the news. He suggested that the company is “moving preemptively to avoid another board showdown later this summer,” but said that the news is a “bullish development.” Anderson was particularly strong on the potential sale of BEF Foods.

“We regard the most important positive coming from the press release was that management appeared more willing to consider a spinoff of the BEF Foods division,” Anderson said. The fall in sow costs, and the potential for a new CEO, “could move up the potential timing of a spinoff,” he said.

Bob Evans could do something else in its shift to a more “asset-light” strategy, he suggested.

“We also do not rule out the potential for refranchising, which we think could boost restaurant unit counts after decades of stagnation,” Anderson said.

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze

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