Like one of its iconic biscuits, Bob Evans Farms has been split in two.
The New Albany-based company sold its restaurant division, which runs 523 stores in 18 states, to private equity firm Golden Gate Capital for $565 million. Bob Evans Farms’ packaged foods division, which makes mashed potatoes, sausage and other side dishes, will continue as a stand-alone, publicly traded company.
Both companies will remain in New Albany at the recently built headquarters, where 400 work.
“This is really a great day,” said Saed Mohseni, Bob Evans CEO, who will remain chief executive of the restaurant company. “We have had a lot of conversations. We looked at many, many options. The conclusion was that both businesses were better off (split up) due to where they are in their life cycle.”
The restaurants continue to see a drop in sales as a slide in customer traffic and profitability has plagued the chain — and many like it in the causal dining segment — for years. The food division is on a different path, though. Bob Evans’ refrigerated side dishes, sold in grocery stores, are the national market leader, and double-digit sales growth has been the norm of late.
Analysts have speculated about Bob Evans’ two divisions for a long time, with many believing the company would sell or spin off the packaged foods to focus on the restaurants.
“It is not the way it was expected to go,” said John Gordon, principal of the Pacific Management Consulting Group. “I would have thought the easiest route was to sell (the food division), but the restaurants were so devalued because of general problems of casual dining that they got swallowed instead.”
The switch to private ownership might give Bob Evans restaurants time to heal and find a way forward, Gordon said. Mohseni agreed.
“Private is much better than being public right now and having to live through quarter after quarter,” Mohseni said. “We can make longer-term decisions instead of looking at every 12 weeks.”
For instance, on March 4, 2015, investors whacked 22 percent off the value of Bob Evans’ stock after a poor quarterly earnings report. The stock has been almost stagnant since.
Mohseni does not believe there will be layoffs or mass store closings in the wake of the deal. Bob Evans has closed dozens of stores in the past year or so and lopped millions from its budget through cost-cutting the past few years. There might even be some hiring, Mohseni said. As part of the restaurant-sale news, Bob Evans also announced the purchase of Pineland Farms Potato Co., based in Maine.
Pineland Farms was a supplier to Bob Evans, and it helped to meet demand for its side dishes on the East Coast. The purchase will help the company grow in Northeast markets such as Boston and New York, Mohseni said. Pineland also comes with a 900-acre farm. Bob Evans Farms will continue management of its farm property in Gallia County.
Golden Gate Capital is based in San Francisco and has some restaurant history. The firm owns Red Lobster and California Pizza Kitchen. It also once owned Romano’s Macaroni Grill. Golden Gate’s record, however, is spotty, Gordon said.
“They are a collector of restaurant brands,” Gordon said. “They bought Macaroni Grill and it just totally hit the pavement right after that.”
While Mohseni follows Bob Evans restaurants to Golden Gate, Bob Evans Farms will be led by a new chief executive, Mike Townsley, who is currently president of the food division. Townsley has been with Bob Evans since 2003.
The proceeds of the sale of the restaurants will be at least $475 million and will be used to pay down debt and issue a special dividend of $7.50 for every share of stock. Activist investor Thomas Sandell, who holds about 8 percent of Bob Evans shares, will receive more than $12 million with the special dividend. Sandell lobbied the company for more than two years to sell its real estate, cut costs and find a way to split up the company for maximum value.
Sandell was not available for comment.
Mohseni said the two companies will continue to work closely given that each is integral to the other. The food division sells sausage and mashed potatoes to the restaurants. The split isn’t unprecedented, though history has not been kind to restaurants in such deals, Gordon said.
“There is precedent,” he said. “Stouffers ran a restaurant chain once.”