Bob Evans Board Describes Sandell Proposals as Short-Sighted, Unsustainable and Not In the Best Interests of All Stockholders

In the letter, Lead Independent Director Michael Gasser and Chairman and Chief Executive Officer Steven Davis, on behalf of the Board of Directors, urged stockholders to elect the nominees recommended by the Board. They noted that after carefully evaluating the ideas presented by Sandell, the Board has concluded that: “1) BEF Foods is an important component of the Company’s long-term growth plan, and disposing of it immediately would not maximize stockholder value; 2) Based on our analysis, Sandell’s rationale for a sale-leaseback of the BER real estate assets is flawed; and 3) Sandell’s share repurchase demands are based on what we believe are unrealistic assumptions. Bob Evans, meanwhile, has consistently and responsibly returned more than $800 million of capital to its stockholders since FY 2007, including a total of $225 million of stock repurchases in FY 2014.”

The Board urged stockholders to submit their voting instructions on the WHITE proxy card to elect the Board’s slate of director nominees at the Company’s Annual Meeting on August 20, 2014.

Complete text of the letter follows:

July 31, 2014

Dear Fellow Stockholder,

Under your Board’s leadership, Bob Evans has a strong record of investing in its businesses (including $644 million of capex invested in our current businesses since FY2007) AND returning capital to stockholders in a prudent and consistent way. Consider these facts:


After carefully evaluating the ideas presented by Sandell, your Board has concluded that:

In our view, your Company is poised to reap the rewards of our recently completed, multi-year investment in BEF. By optimizing the Company’s network, we have created a significant runway for growth and we continue to benefit from many valuable synergies between BEF and BER.

Meanwhile, we believe Sandell overlooks factors that would cause meaningful value erosion in a separation of the BEF business, including recurring dis-synergies, ongoing and incremental standalone costs, one-time separation costs, and significant tax expense.

As part of its commitment to drive stockholder value, the Bob Evans Board regularly evaluates the optimal strategy with respect to ALL of its assets and will continue to do so. As a result of this process, your Board has determined – with the benefit of input from its independent external advisors – that now is not the time to separate the businesses.

We believe Sandell’s analysis has overlooked many important factors, including significant rent expense and future rent escalators, which would reduce EBITDA and free cash flow, and would be treated as additional debt by rating agencies and our banks. This would increase our debt costs as well as reduce our incremental debt capacity and financial flexibility.

A sale-leaseback would mean higher costs relative to other forms of available financing, and there would be strategic and financial implications. It would also require renegotiating our existing credit agreement and incurring breakage costs and significant tax expense.

Finally, selling our real estate would reduce flexibility to close underperforming restaurants and improve facilities – major factors in the historical and long-term success of our restaurant business.

We have a proven track record of balanced capital allocation. While continuing to invest in our businesses, we have repurchased more than $625 million worth of our stock since FY 2007, reducing the share count by 27%. The Company has paid more than $190 million in dividends since FY 2007, and the annual dividend has doubled over the last five years to $1.24 per share.

Our total leverage level and history of return of capital are in line with, or better than, other casual dining operators. And going forward, the Company’s objective is to maintain a 3.0x leverage and return excess cash to stockholders.


Consistent with our fiduciary duty to you and our high governance standards, your Board of Directors has tried to work constructively with Sandell for nearly 12 months, carefully considering their ideas and proposing ways to add new independent and highly qualified individuals to the Board. We subject our financial and strategic plans to rigorous review on a regular basis – including in consultation with independent financial advisors – and we welcome fresh perspectives.As part of that process, the Board made numerous efforts to avoid the extraordinary time and costs of a proxy contest by seeking alternatives that would add some number of Sandell’s nominees to our Board. In a further demonstration of our open mindedness, we decided to keep the Board size at 12, even with the announced retirement of two incumbent directors before the 2014 Annual Meeting. Since the Board has nominated a slate of 10 directors for those 12 positions, we expect that at least two of Sandell’s nominees will be elected, even if the entire Board slate is elected.

While we are disappointed that Sandell has rejected our proposals, we are committed to continuing to work with all of our investors as we consider options for enhancing stockholder value. We will continue to review our plans and strategies carefully, and will measure their success based on performance in the markets we serve, with the overriding objective of serving your best interests.

Thank you for your continued support.


/s/ Michael A. Gasser

/s/ Steven A. Davis

Certain statements in this letter that are not historical facts are forward-looking statements. Forward-looking statements involve various important assumptions, risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events. We discuss these factors and events, along with certain other risks, uncertainties and assumptions, under the heading “Risk Factors” in Item1A of our Annual Report on Form 10-K for the fiscal year ended April25, 2014, and in our other filings with the Securities and Exchange Commission. We note these factors for investors as contemplated by the Private Securities Litigation Reform Act of 1995. Predicting or identifying all such risk factors is impossible. Consequently, investors should not consider any such list to be a complete set of all potential risks and uncertainties. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect circumstances or events that occur after the date of the statement to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to us or any person acting on behalf of the Company are qualified by the cautionary statements in this section.

Bob Evans Farms Inc. (the “Company”), its directors and certain of its executive officers are participants in the solicitation of proxies in connection with the Company’s 2014 Annual Meeting of Stockholders. The Company has filed a definitive proxy statement and form of WHITE proxy card with the U.S. Securities and Exchange Commission (the “SEC”) in connection with such solicitation of proxies from the Company’s stockholders. WE URGE INVESTORS TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS AND SUPPLEMENTS THERETO) AND ACCOMPANYING WHITE PROXY CARD CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION.

This document contains quotes and excerpts from certain previously published material. Consent of the author and publication has not been sought or obtained to use the material as proxy soliciting material.