The homespun hospitality behind Bob Evans Farms Inc. has given way to bickering in its boardroom, as a proxy battle between the company and an activist investor heightens in the run-up to the chain’s Aug. 20 annual meeting.
Both the 561-unit, New Albany, Ohio, restaurant chain and investor Sandell Asset Management, one of Bob Evans’ largest stockholders, cited third-party proxy evaluations to justify their positions on how the company should be run and its board of directors rearranged.
Egan Jones advisory services sided with Bob Evans in suggesting Sandell’s ideas for increasing the company’s value to shareholders would be imprudent and unsuccessful.
Institutional Shareholder Services (ISS), an advisory services firm hired by Sandell, sided largely with the investor, agreeing with its claims that Bob Evans suffers from a significant lack of board oversight and accountability.
Sales and unit growth struggles have slowed the company for some time. In its most recent fiscal year ended April 25, earnings per share slipped to $1.16, from $2.90 in 2013.
ISS concluded the board has not managed the company’s long-term trends in “operating weakness and underperformance,” and that positive change is beyond the reach of current management. ISS said restaurant companies facing similar external challenges “were successfully addressing them and … that change at the board level is necessary."
However, in a statement released by Bob Evans on Aug. 8, the company pointed out ISS’s recommendation that stockholders vote for only four of Sandell's nominees from a total of 12 seats on Bob Evans’ board. Four new seats would not give the group its desired control of the company.
For the better part of a year, Sandell and Bob Evans’ board have sparred in a flurry of Securities and Exchange Commission filings over how to improve the company’s earnings and holdings. Sandell CEO Tom Sandell stated that several keys to “unlocking shareholder value” included the divestiture of BEF Foods, the chain’s retail manufacturing arm, and sale leaseback arrangements of its company-owned real estate.
In addition to Sandell’s desire that the company separate its chairman and CEO titles, he objected to Bob Evans’ shared purchase of a corporate jet with Greif Inc., an industrial packaging manufacturer owned by Michael Gasser, Bob Evans’ lead independent director.
In a later statement, Bob Evans’ CEO Steve Davis said Sandell’s proposals were “not in the best interest of all shareholders,” partly because it would introduce too many inexperienced directors to the board. He added that, “Mr. Sandell should focus on a constructive resolution rather than pursuing an expensive and divisive proxy campaign.”
Sandell countered with his own statement, criticizing the restaurant company for spending $3 million on its board election thus far, and its commitment to spend as much as $5.5 million if necessary. He said such spending illustrated “the extreme lengths to which this company will go in order to maintain the status quo.”
This story has been revised to reflect the following correction:
Correction: Aug. 13, 2014 An earlier version of this article misstated the position of proxy advisory services ISS, Glass Lewis and Egan Jones as hired by Bob Evans and/or Sandell to evaluate the business. Each service operates independently to evaluate corporate and investor positions in a proxy contest. The story also reported that Sandell occupies two seats on Bob Evans' board. It currently has none.