January 15, 2014
An activist Bob Evans Farms investor has sued the company to try to make it easier for shareholders to effect changes.
New York hedge fund Sandell Asset Management, which owns 6.5 percent of the New Albany company’s stock, asked the Chancery Court in the state of Delaware yesterday to lower the shareholder vote required to change Bob Evans’ bylaws to a simple majority — more than 50 percent.
Sandell plans to ask shareholders to expand the size of Bob Evans’ board, which is limited to 12 members — only 10 of the seats are filled — and to fill vacancies “with new directors who are more focused on delivering value to the shareholders, who are the true owners of Bob Evans,” the asset manager said in a statement.
“We have become convinced that dramatic governance change is necessary to rein in what we believe are the irresponsible spending habits and poor decisions made by (Steven) Davis, the company’s chairman and CEO,” said Thomas Sandell, CEO of the asset manager, in the statement.
A Bob Evans spokeswoman said yesterday that the company is reviewing Sandell’s complaint. “ We take corporate governance and shareholder views seriously and will respond in due course,” said Margaret Standing in an email.
Eleanor Bloxham, a corporate-governance expert in Westerville, said many companies are moving away from requiring shareholders to approve changes with a supermajority vote of 80 percent.
“That is the trend today,” Bloxham.
In September, Sandell’s firm went public with its suggestions to split up Bob Evans’ restaurant and food-service businesses, sell and lease back its substantial real-estate holdings, and use proceeds from the sales to repurchase a large amount of stock at a premium to “unlock shareholder value.”
A month later, Sandell said it had hired proxy-solicitation firm MacKenzie Partners to review options — including a proxy fight — for maximizing the value of its Bob Evans shares because the company had failed to act on its suggestions.
In December, Davis, CEO of Bob Evans, said his directors and advisers had analyzed Sandell’s suggestions but dismissed them because they would increase his company’s costs and reduce its cash flow, profit and flexibility to pay for future growth.
Now, Sandell contends that some Bob Evans directors have been on the board too long and are too close to Davis and to one another to make independent decisions. Enlarging the company’s board could accommodate directors who agree with Sandell, a move often made by activist shareholders.
As early as 2006, some Bob Evans shareholders wanted to re-elect the company’s directors every year; that is often an effort to elect directors with fresh points of view. These shareholders “ were looking for more ability to influence governance at the company,” said corporate-governance expert Bloxham.
Although Bob Evans didn’t support such a move in 2006, the company itself proposed the annual election of directors in 2007, 2009 and 2010. Shareholders did not approve the proposal until 2011, when they also approved lowering the required share of the vote to make certain bylaws changes to 50 percent.
Sandell contends that Bob Evans directors acted to “strip shareholders of their rights” by returning the vote requirement to 80 percent three months later.
“It does look like a defensive move on the part of the company,” Bloxham said.