Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Bob Evans Farms Inc. (BOBE - Snapshot Report) recently inked an agreement with LeDuff America to sell its French-themed casual dining restaurant chain Mimi's Cafe for $50.0 million. Of the total consideration, $20.0 million would be paid in cash and $30.0 million in notes. Bob will provide certain transitional services to the acquirer for up to one year.

Last November, Bob Evans – the parent company of Mimi's Cafe and its namesake brands -- had engaged an investment banking firm specializing in the restaurant industry to evaluate the strategic alternatives related to its Mimi’s Cafe business segment and optimize the company's asset in the segment accordingly to enhance shareholder value. The latest deal is the outcome of that engagement. The deal is expected to be sealed within the next one and half months upon the fulfillment of customary closing conditions.

Why Mimi's Cafe?

Mimi's Cafe's 145 units in 24 states contribute around 20% of the company’s total revenue. The chain has been struggling for the last few quarters. In Bob Evans’ latest reporting quarter, the second-quarter of fiscal 2013, Mimi's Cafe’s comps plunged 5.6% which resulted in a 4.7% decline in total sales. Mimi's Cafe's adjusted operating loss was also wider than the prior-year period.

For the upcoming third quarter, management expects to post adjusted earnings in the range of 51—57 cents per share that includes yet another underperformance at Mimi's Cafe mainly due to lesser focus on the brand resulting from the announcement of the strategic review process.

Strategic Deal for Both Parties

On the other hand, the buyer LeDuff -- a U.S. based subsidiary of France-based global bakery and restaurant company Groupe LeDuff SA -- owns and operates a wide portfolio of cafe-bakeries, coffee houses, boulangeries and related manufacturing units in North America. Consequently, we expect both companies to derive operating synergies from the deal as both of them operate in the same vertical.

Probably, the Mimi's Cafe concept did not resonate well with the parent company Bob Evans’s long-term operational strategy. As per Bob Evans management, casual dining segment’s average exposure to alcohol is 10% while Mimi's Cafe, primarily focusing on lunch and dinner day-part commands only 3-4% share. This was due to the lack of significant bar exposure of the parent company Bob Evans.

We believe that after the transfer, Mimi's Cafe will be well handled as its new owner LeDuff has a proven track record of operating a variety of renowned eatery brands including La Madeleine Country French Cafe, Brioche Doree, Bruegger's Bagels, Timothy's Coffee and Michel's Baguette.

Bob Evans currently retains a Zacks Rank #3 (Hold). However, we believe, shares of Bob Evans should get a boost from this deal as it eliminated its major operational hindrance. The divesture will help Bob Evan to concentrate on its better-performing namesake brands -- Bob Evans Restaurant and Bob Evans Foods segments -- as well as meet its long-term goal to grow earnings per share 8% to 12% annually. The company will also receive a cash tax benefit of $53 to $63 million to be realized over the next few years.

Merger & Acquisition: An Industry Trend

Bobe Evans is not the only fast food chain looking to vend slower growth brands. In recent past, sell-offs and acquisitions gained momentum in restaurant industry as these are a long-term strategy to strengthen financial flexibility. To name a few, Yum! Brands Inc. (YUM - Analyst Report) divested its sluggish Long John Silver’s and A&W brands to concentrate more on its star performers like KFC, Pizza Hut and Taco Bell.  

Wendy’s Co. (WEN - Analyst Report) dropped Arby’s from its name so that it can concentrate on its better performing Wendy's hamburger chain. Yet another company, Frisch's Restaurants Inc. also sold all its Golden Corral operations last year.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
GENERAL FINA GFN 8.20 +5.67%
QIHOO 360 TE QIHU 91.57 +4.38%
VIPSHOP HOLD VIPS 140.01 +3.49%
INVEST TECH- ITG 19.16 +3.34%
VERTEX ENERG VTNR 7.38 +3.07%