The Morning Brief: Busy Day for Activists

Bob Evans Farms, an activist target, announced it will sell its Bob Evans Restaurants business and acquire Pineland Farms Potato Company. The goal is to concentrate on its BEF Foods distribution business.

“The new Bob Evans…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,” the company states in a press release. Shares of Bob Evans surged about 21 percent, to close at $57.94.

Sandell Asset Management, which owned 6.39 percent of the shares at the end of the third quarter, has repeatedly called on the company to break into two separate independent businesses, Bob Evans Farms Foods and Bob Evans Restaurants. The company is selling Bob Evans Restaurants to an affiliate of private equity firm Golden Gate Capital for $565 million, plus assumption of $40 to $50 million in certain net working capital liabilities. The net cash proceeds are expected to be used to repay current debt and to pay a special dividend. Bob Evans is also acquiring PFPC for $115 million. In addition, the company’s board of directors increased its share repurchase authorization to $100 million through calendar year 2017.

Pineland is a potato processor. Golden Gate has made investments in Red Lobster, California Pizza Kitchen, On The Border Mexican Grill & Cantina, Eddie Bauer, Express, Pacific Sunwear, Payless ShoeSource and Zales.


Shares of activist favorite Buffalo Wild Wings rose 2.16 percent, to close at $158.10, after the casual dining company announced a $400 million stock repurchase program, bringing the total authorization to $900 million. The company also said it moved up its plan to reach a leverage ratio target of 1.5 times debt to EBITDA, to the end of fiscal 2017 from its previous target date of the end of fiscal 2018.

Richard (Mick) McGuire III’s Marcato Capital Management established the company as an activist target in the third quarter, becoming the fourth-largest shareholder with 5.2 percent of the shares. Millennium Management owned 2.6 percent of the shares.

At least one investment bank was unimpressed with Buffalo Wild Wings’ announcement. On Wednesday morning, Credit Suisse cut its price target on the stock from $175 to $165, noting it is lowering its estimates despite the higher buybacks “to reflect a more muted sales and margin outlook.” The bank said it now expects the company to miss estimates when it reports its fourth-quarter results. “We recognize that the activist presence at BWLD provides a sense of urgency for management to address recent market share loss and margin erosion,” Credit Suisse adds in a note to clients. “Our concern is that BWLD needs a deeper reset in the areas of value, food quality and service to truly turn around the business. These changes are unlikely to be achieved if the priority is on managing down costs.” So, this means the shares could fall before stabilizing, the bank adds.


Elliott Associates, the flagship hedge fund of Paul Singer’s Elliott Management Corp., bought about three million shares of Arconic, boosting its stake in the Alcoa spinoff from 9.6 percent to 10.3 percent. It also raised its economic exposure in the stock to 11.9 percent. Elliott once again said in a regulatory filing that following the recent spinoff, the stock is “dramatically undervalued” and is “an attractive investment opportunity.” Shares of Arconic jumped 2.30 percent to close at $22.68.


ValueAct Capital Management bought another 575,000 shares or so in Alliance Data Systems Corporation, bringing its stake to 5.82 million shares, or 10.1 percent of the total outstanding of the provider of private label credit cards. The stock rose about 0.50 percent, to close at $227.26.