There is rarely a dull moment in the ever-changing publicly traded restaurant landscape. Off-the-radar name Bob Evans (BOBE) put itself back in the news this week with the announcement that it is selling its restaurant business to Golden Gate Capital for $565 million and will focus solely on its prepared foods business, BEF Foods. Shares, which rose 21% on Wednesday in reaction to the deal, are up nearly 50% in the past three months.
The company had been the subject of activist investor involvement over much of the past three years. Sandell Asset Management won four board seats in 2014 and pushed for change at the company, including a separation of the struggling restaurant business from the prepared foods segment. In December 2015, a proposal to do so by Sandell was rejected by the board of directors. After briefly reducing its stake in the company last March, Sandell re-engaged over the summer, raising its stake and filing a 13D stating its desire to push for a separation of the businesses.
While all details of the deal are not yet clear, Golden Gate reportedly will assume $40 million to $50 million of the company's liabilities. Net cash proceeds to Bob Evans are expected to be in the range of $475 million to $485 million.
On yesterday's conference call, Bob Evans management discussed how it will use proceeds from the sale; those plans include paying down debt, paying out a $7.50 special cash dividend to shareholders and initiating a $100 million share repurchase plan. In addition, the company expects to maintain its current 34-cent quarterly dividend.
Going all in on BEF Foods, the company also announced the acquisition of Pineland Farms Potato Company of Mars Hill, Maine, for $115 million plus up to a $25 million earn-out. This acquisition, which includes a 900-acre potato farm, is expected to help the company alter its sales mix, pushing side dish sales to about 75% of the total by 2020 (they currently are 56%) while decreasing sausage sales from 29% to 18%.
BEF Foods has quite a presence, with products sold in more than 35,000 stores. I've noticed a growing line of side dishes sold in our local stores over the past couple years. I've even sampled some and was impressed. (They are certainly a long way from the TV dinners of my youth.)
Assuming that both the restaurant sale and Pinelands deal close by late April, Bob Evans is projecting 2018 revenue of $470 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of $105 million. For comparative purposes, trailing 12-month revenue and EBITDA for the company are $1.31 billion and $120 million, so profit margins are expected to be much higher for the stand-alone food business.
For its part, Golden Gate Capital is amassing quite the restaurant portfolio. It also owns California Pizza Kitchen and acquired the Red Lobster chain from Darden (DRI) in 2014.
I suspect this is not the last activity that we'll see in restaurant land in 2017. More consolidation, acquisitions or perhaps bankruptcies may be on the horizon.