In the latest quarterly report, the CEO of Bob Evans
The possible solution to Bob Evans' problem came yesterday, as the company announced it is purchasing Mimi's Cafe. A few months ago, Mimi's Cafe filed for an IPO. However, in the age of heavy regulations and intense competition -- from heavyweights like Yum! Brands
In the transaction, Bob Evans will pay $182 million in cash, plus $78.7 million in outstanding debt, to purchase Mimi's Cafe. Mimi's is a relatively small regional player, with 81 company-owned restaurants. The chain has a Euro bistro theme and high-quality food at an affordable average check size of $9.50.
Last year, Mimi's Cafe generated revenues of $240.5 million. Moreover, sales and earnings have been growing 18% to 20% per year. Bob Evans doesn't want to ruin a good thing, so it will allow Mimi's Cafe to remain a separate subsidiary led by its existing management team.
On the conference call, management of Bob Evans indicated that the acquisition will be neutral to slightly positive on earnings per share for fiscal year 2005. But this may be an underestimate. After all, the valuation does not include the possible synergies.
More important, it is likely that Bob Evans will lessen its investments in Bob Evans restaurants and use its operating cash flows to build out more Mimi's Cafes. That may be the recipe that will finally put Bob Evans on the growth track.
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Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements . He does not own shares in any of the stocks mentioned.