Shares of Bob Evans Farms Inc (NASDAQ:BOBE) were surging today after the company announced that it would sell its restaurants, splitting the casual-dining chain from its packaged-food business. As of 12:31 p.m. EST, the stock was up 22.3%.
The company said it would sell Bob Evans Restaurants to private-equity firm Golden Gate Capital for $565 million, which is equivalent to about 60% of the company's market value before the announcement and 50% today. That price tag includes liabilities, meaning Bob Evans expects to collect $475 million to $485 million in proceeds. Management said it will use that money to pay down debt and issue a special dividend of $7.50 a share within 60 days of closing, which may partly explain today's stock pop.
In addition, the packaged-food division, BEF Foods, said it would acquire Pineland Farms Potato Company for $115 million as it doubles down on growth in its packaged-foods segment. The company expects both deals to close within the next three months, or before its current fiscal year ends.
The sale of the restaurant chain seems to make sense as the business has struggled recently, with comparable sales falling 3% through the first half of the fiscal year, continuing a streak of at least six quarters with comparable sales declines. Golden Gate Capital specializes in buying lackluster restaurant chains and food businesses, so it's not surprising to see that firm jump on the opportunity.
Despite being the smaller of the two segments based on revenue, BEF Foods generates more operating profits than the restaurants, explaining why the company is investing in that business and ditching the other one. Management also maintained its earnings guidance for fiscal 2017 of $2.15-$2.30 per share, and targeted revenue of $470 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $105 million for fiscal 2018.