Bob Evans Farms transforms itself from a restaurant chain to a food manufacturer

Earlier this week, Bob Evans Farms, Inc. (NASDAQ: BOBE) announced two transformational transactions resulting from the board of directors’ strategic review of the Company’s alternatives for creating shareholder value.

The sale of Bob Evans Restaurants and the acquisition of Pineland Farms Potato Company marks the beginning of a new era at Bob Evans Farms (“Bob Evans”) in which the Company will focus exclusively on realizing the full potential of its BEF Foods business. BEF Foods is the national market share leader in refrigerated dinner side dishes, and is also the market share leader in sausage products in its core Midwest markets.

The new Bob Evans,further strengthened by the manufacturing and intellectual capital of Pineland Farms Potato Compan, is positioned to be a higher profit and higher growth company that is expected to provide better returns to shareholders and an enhanced product line for customers.
 

After the closing of the Bob Evans Restaurants transaction, Mike Townsley, President, BEF Foods, will become President and CEO of Bob Evans

The Company has entered into a definitive agreement for the sale of Bob Evans Restaurants to an affiliate of Golden Gate Capital for $565 million plus assumption of certain net working capital liabilities at the time of closing estimated to be $40 to $50 million.

The Company estimates that cash proceeds net of taxes and transaction-related costs will be $475 to $485 million. As discussed below, net cash proceeds are expected to be used to repay current indebtedness and payment of a special dividend.

Additionally, the Company entered into a definitive agreement for the purchase of the Pineland Farms Potato Company for $115 million. The purchase price may be increased by up to $25 million if certain financial metrics are achieved during a 24-month period after closing.

Saed Mohseni, President and Chief Executive Officer :
 

“Today we announced two transactions that are a major step in our strategic transformation that we believe will continue Bob Evans’ history of success.”

“The sale of Bob Evans Restaurants enables us to concentrate exclusively on BEF Foods, our fastest growing and most profitable segment. We believe this focus will result in higher returns for our shareholders and, as a more focused private business, Bob Evans Restaurants will be better able to deliver on its brand promise of providing quality food and hospitality to every guest at every meal. Bob Evans Restaurants has made tremendous progress over the last few years as our teams have strived to upgrade every aspect of the guest experience. We believe our talented restaurant teams, combined with Golden Gate Capital’s industry expertise and significant resources, positions Bob Evans Restaurants well for realizing its full potential.”

“I am also pleased that we have signed an agreement to purchase Pineland Farms Potato Company. We believe this transaction will better enable BEF Foods to continue growing and innovating. The acquisition of Pineland Farms Potato Company not only increases our side-dish production capacity, it provides capability to produce and sell diced and shredded potato products in both the retail and foodservice channels. The acquisition also diversifies our production capability by adding a second state-of-the-art potato processing facility with 180 million pounds of capacity, 50 million pounds of which are expected to come online in April 2017.”

“Furthermore, Pineland Farms Potato Company comes with a 900 acre potato farm and is surrounded by an additional 55,000+ acres of annual potato production. Its close proximity to tens of thousands of acres of potato production is particularly attractive as it greatly reduces transportation costs. BEF Food’s side-dish product mix is expected to reach 66% of sales volume by 2020, and the Pineland Farms Potato Company acquisition mitigates the need for near term capital spending for additional capacity to meet our growth targets. Following the completion of these transactions, Bob Evans will be focused exclusively on sales and profit growth of BEF Foods.”

Doug Benham, Executive Chairman:
 

“The board of directors has consistently evaluated all options for creating shareholder value. From the outset, our philosophy has been to engage in a robust and deliberate process in an effort to make what we believe are the best decisions for shareholders. We believe these transactions are the best options for creating shareholder value and providing for the future success of these two great businesses.”

“Following the closing of the Bob Evans Restaurants transaction, Mike Townsley, President, BEF Foods, will assume the role of President and Chief Executive Officer of Bob Evans. Mike joined Bob Evans as president and chief operating officer of Owens Foods, Inc. in June 2003. Mike was appointed president of BEF Foods in June 2008. He also served as co-chief executive officer from December 2014 to September 2015.”

“Mike has been the driving force behind the transformation of BEF Foods and we look forward to continued strong leadership from him and his team, including Chief Administrative and Chief Financial Officer Mark Hood who will remain in his role. The board appreciates the extraordinary talent, energy, and vision that Saed Mohseni has brought to Bob Evans and is excited that he has agreed to continue leading Bob Evans Restaurants following the transaction.”

Josh Cohen, Managing Director at Golden Gate Capital:
 

“Bob Evans Restaurants is an exceptional brand, uniquely differentiated by its deep-rooted heritage of farm-fresh food and heartfelt hospitality.”

“As an independent company partnered with Golden Gate Capital, Bob Evans Restaurants will be well-positioned to sharpen its focus on enhancing the business, with increased flexibility and resources to grow the company for the long-term.”

“We look forward to working with Saed Mohseni and the talented management team to support Bob Evans Restaurants as it enters this exciting new chapter.”

Mark Hood, Chief Administrative and Chief Financial Officer:
 

“The Company expects to provide an updated GAAP EPS guidance range and recast Bob Evans Restaurants’ results as discontinued operations when it reports third quarter fiscal 2017 results. We are reaffirming our full-year fiscal 2017 non-GAAP diluted EPS guidance range of $2.15 to $2.30, assuming a closing date of April 28, 2017, on the aforementioned transactions.”

“Furthermore, it is our expectation that our board of directors will declare a special dividend of approximately $150 million ($7.50 per share) representing net cash proceeds from the sale of Bob Evans Restaurants after repayment of debt within 60 days following the transaction. Additionally, the board of directors increased the Company’s existing share repurchase authorization to $100 million through calendar year 2017. We also anticipate continuation of our quarterly dividend payments, currently at $0.34 per share.”

“We are also providing fiscal year 2018 preliminary revenue and EBITDA targets of $470 million, and $105 million, respectively. We expect to establish a $300 million credit facility at the time of the transaction closings and expect that our targeted leverage range will be 1.0-2.0x which provides considerable flexibility to continue to grow and invest in BEF Foods.”

The closings of the transactions are each subject to expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary closing conditions. The sale of the Bob Evans Restaurants business to Golden Gate Capital is not subject to a financing condition. Under the terms of the definitive agreement for the sale of the Bob Evans Restaurants business, the Company will provide certain transactional support services to the buyer for a period of 18 to 24 months following the closing.

Under the terms of the definitive agreement for the sale of the Bob Evans Restaurant business, the Company may solicit superior proposals from third parties through February 28, 2017. It is not anticipated that any developments will be disclosed with regard to this process unless the Company’s Board of Directors makes a decision with respect to a potential superior proposal. There are no guarantees that this process will result in a superior proposal.

J.P. Morgan Securities LLC served as financial advisor to the Company on the sale of Bob Evans Restaurants. UBS Investment Bank served as financial advisor to Golden Gate Capital. Information concerning this event was filed by the Company today with the Securities and Exchange Commission and can be obtained at www.sec.gov.