Bob Evans Farms Inc. has offered two board seats to activist investor Sandell Asset Management to stave off a “costly and divisive proxy contest” at this summer’s annual stockholder meeting, according to the company’s preliminary proxy statement.

According to a statement from the company, Bob Evans Farms has made “several good-faith attempts to work with Sandell Asset Management and its affiliates to arrive at a construction settlement,” including the proposal earlier this month to give two board seats to potential directors Sandell has nominated and place them on the finance committee. However, Sandell, which owns about 6.8 percent of Bob Evans Farms’ stock, has rejected the company’s offers, officials said.

Thomas Sandell and his partners counter-proposed that the company name four of his nine nominees to the board and commit to his full strategic agenda.

Sandell’s nominees to Bob Evans Farms’ board include Doug Benham, former chief executive of Arby’s; David Head, former chief executive of O’Charley’s; Steve Lynn, former chief executive of Sonic Drive-In; and Michael Weinstein, former chief executive of Triarc Beverage Group.

Nearly one year ago, Sandell Asset Management began calling for Bob Evans Farms to create more shareholder value by spinning off its Bob Evans Foods division and performing a large sale-leaseback transaction for its real estate, which supposedly would generate enough cash to fund a major share repurchase effort.

Sandell made these demands public with an open letter to Bob Evans Farms published last September, when Sandell owned about 5.1 percent of Bob Evans Farms’ outstanding shares.

The company in turn has declined publicly to take up Sandell’s suggested strategy, saying in December 2013 that it would not pursue “financial-engineering tactics that place our company’s ability to deliver long-term shareholder value at unnecessary risk.”

In April, the company named three new independent directors to the board, including Norwegian Cruise Line chief executive Kevin Sheehan, former TJX Companies chief information officer Kathy Lane and Compass Marketing co-chief executive Larry McWilliams.

Chief executive Steve Davis said in a statement that Bob Evans Farms offered to meet and interview all nine people Sandell proposed to the company’s board, yet only one of those nominees responded to the company’s invitation, and that person declined a meeting.

“We are disappointed that Mr. Sandell has not joined us in a constructive approach,” Davis said, “but I want to assure all of our stockholders that the board remains open to pursuing a solution that will avoid a costly and divisive proxy contest.”

However, one securities analyst who follows Bob Evans, Stephen Anderson of Miller Tabak + Co., wrote in a research note that Sandell’s proxy fight would likely drag on all the way up to the annual stockholder meeting. He argued that Sandell has some leverage over Bob Evans Farms because recent industry transactions — including the $2.1 billion sale of Red Lobster and Tyson Foods’ acquisition of Hillshire Farms — have strong parallels to Bob Evans Farms’ restaurant and packaged-foods businesses.

“We do not think Sandell will stop at the offer of two board seats offered by the company,” Anderson wrote, “as we argue the slate of seasoned nominees with relevant restaurant turnaround experience and the sales of Red Lobster and Hillshire have made Sandell’s argument more pertinent in the view of investors.”

He added that Sandell could possibly get at least two additional directors nominated to the board in addition to the two seats currently offered by Bob Evans Farms and also hold influence with the three new directors added in April, “such that Sandell could have influence over the majority of the board.”

With its latest filing of proxy materials, Bob Evans Farms still leaves an opening for Sandell Asset Management to place two directors on the company’s board of directors. Two of Bob Evans Farms’ current directors, Larry Corbin and Robert Lucas, will retire immediately prior to the annual meeting, but the size of the company’s board will remain at 12 directors. Bob Evans Farms has nominated a slate of 10 directors, and Sandell is the only investor to have proposed any nominees for the remaining two seats on the board.

“The offer the board made to Mr. Sandell is consistent with efforts the board has made over the past eleven months to attempt to work constructively with Mr. Sandell,” Davis said. “We have repeatedly emphasized that, while we have subjected our financial and strategic plans to rigorous review on a regular basis, including in consultation with independent financial advisors, and are confident that we are on the right course, we are not so captivated by our own ideas that we do not welcome fresh thinking.”

New Albany, Ohio-based Bob Evans Farms Inc. operates 562 namesake family-dining restaurants in 19 states.

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN