It's been nearly a year since activist investor Barington Capital sent a letter to Bloomin' Brands (BLMN) Chairman and CEO Elizabeth Smith, seeking major changes at the company whose brands include Bonefish Grill, Carrabba's, and Fleming's Prime Steakhouse and Wine Bar, in addition to Outback Steakhouse, the flagship brand.
Barington pointed to BLMN's underperformance relative to its peers, and had several "suggestions" to enhance shareholder value. The most far reaching step would be for the company spin-off its smaller brands Bonefish Grill (one of my personal favorites in terms of chain restaurants), Carrabba's and Fleming's into a new entity. That would leave Outback Steakhouse, which generated 60% of last year's revenue, as its own entity. In addition, Barington called for efforts to "enhance the guest experience" in order to drive customer loyalty, reduce corporate and advertising expenses, and improve corporate governance, including changes to the composition of the board of directors.
As is often the case in activist situations, especially when the activist owns such a small stake (Barington Capital owned just under .5 % of the company as of mid-November, after increasing its stake by 5%, although it claims to also be representing a group of shareholders), these situations can take a significant amount of time to play out. The initial boost shares received at the time of Barington's February letter has evaporated, and shares are now down about 12% since.
This past October, Barington sent a follow-up letter to BLMN, complaining about the CEO's declining to meet (while acknowledging that others in the organization had been willing to provide information) and reiterating its previous suggestions, including the appointment of an independent Chairman of the board. BLMN responded, saying that it did have several discussions with Barington, and is making progress, while all but dismissing the activist's suggestions.
Where things head from here could become interesting, especially with fourth quarter earnings expected to be announced on February 21. The past two letters sent by Barrington occurred just prior to last year's fourth quarter earnings release, and a week before the 2018 third quarter release, so we'll see if Barington ups the ante with another letter, or perhaps a proxy contest at some point.
BLMN currently trades at about 12.5x next year's consensus earnings estimates, among the cheapest restaurant names on the basis of price to earnings. In fact, in terms of restaurant names with market caps in excess of $1 billion, only Dine Brands Global (DIN) , and Brinker International (EAT) are cheaper. However, there seems to be little investor excitement about BLMN which currently trades at the same level it did in October of 2014.
As state previously, activist situations can take a long time to play out, that is if they don't fizzle out completely, in situations where the activist simply can't gain enough traction or support. Bob Evans is an interesting example. While it had a good outcome overall for many investors, it took years to play out.