Industry News | January 29, 2013

Bob Evans Sells Mimi's Cafe to LeDuff America for $50M

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Bob Evans Farms announced it had entered into a definitive agreement for the sale of its Mimi's Cafe restaurant chain to LeDuff America (LDA).   

Mimi's Cafe is a French-inspired casual-dining restaurant with 145 locations in 24 states, primarily in the West and Southwest. It recently launched a new store-within-a-store concept that adds a quick-service component to its offerings. 

LDA, headquartered in Dallas, owns and operates an extensive collection of cafe-bakeries, coffee houses, boulangeries, and related manufacturing in North America.

The current LDA restaurant portfolio consists of La Madeleine Country French Cafe, Brioche Doree, Bruegger's Bagels, Timothy's Coffee, and Michel's Baguette. LeDuff America is a U.S.-based subsidiary of Groupe LeDuff SA, a global bakery and restaurant company headquartered in Rennes, France. 

The purchase price for the transaction is $50 million, consisting of $20 million in cash and a note for $30 million, subject to customary purchase price allocations and adjustments as of closing. 

The transaction is subject to customary closing conditions and is expected to be completed within the next 45 days.

Bob Evans chairman and CEO Steve Davis says, "This transaction is a positive development for Bob Evans, as well as for Mimi's Cafe. After closing the sale, Bob Evans will have reset itself to better focus efforts and investments on achieving our long-term commitment to grow earnings per share 8 percent to 12 percent annually. 

“The agreement with LeDuff America reflects the review of strategic alternatives for Mimi's Cafe that was announced in November 2012, which included a careful and diligent process to find a buyer for Mimi's Cafe that would provide value for Bob Evans shareholders and a good strategic fit to support the long-term growth potential of Mimi's Café," he continues.

"Through our strategic planning process, we determined that a dedicated focus on driving profitable growth within our Bob Evans Restaurant and Bob Evans Foods business segments was our best course of action,” he continues. “Successful growth initiatives at Bob Evans Restaurants, such as the Farm Fresh Refresh remodeling program and geographic expansion through new restaurant openings; and product innovations at Bob Evans Foods, particularly within the refrigerated side dish, sausage, foodservice, and frozen foods businesses, are early examples of what this organization is capable of when it focuses on profitably growing its core segments. We are dedicated to continuing to reap benefits from these initiatives, as well as to developing future innovations that will be implemented more effectively and rapidly as a result of the tighter focus this transaction enables."

The company also said it expects to provide certain transitional support services on a contractual basis to Mimi's Cafe during a period following the close of the transaction. 

LDA intends to continue operating and managing the company out of its current Irvine, California, office. 

"[We] are thrilled to acquire Mimi's Café, which embodies our passion for French-inspired cuisine and ambience, coupled with our 'Joie de Servir' or the Joy of Service,” says Claude Bergeron, chairman and co-CEO of LeDuff America. “We are very excited by the potential of the brand and look forward to leveraging a number of operating synergies along with our combined expertise to further enhance Mimi's Cafe position in the market and to introduce it to numerous communities across North America."

Further information related to the transaction is included in the Form 8-K Current Report that has been filed with the Securities and Exchange Commission contemporaneously with the issuance of this release.

Bob Evans was advised by Lazard, the company's independent financial advisor, on the process and transaction.

Bob Evans also said that revenue for the third quarter of fiscal 2013 will exceed last year's third quarter driven by positive sales growth in both the Bob Evans Restaurants and Bob Evans Foods segments.  

The third quarter of fiscal 2013 will be the last period for which Mimi's Cafe is included within the company's non-GAAP consolidated results. 

During the quarter, the company also announced early payment of its private placement notes, and the conversions of its restaurant operating companies to an LLC structure. 

Among the benefits expected from the payment of the notes is reduced interest expense on a go-forward basis. The conversions of the restaurant operating companies to an LLC structure are expected to generate a cash tax benefit of $53–$63 million to be realized over the next few years. 

The cash tax benefit arises from a write-down of the tax basis of the company's investment in Mimi's Cafe. The cash tax benefits are not expected to permanently change the company's tax rate.

The company's non-GAAP earnings for the quarter will be negatively impacted by several noncontinuing factors affecting each of its segments, and the timing of marketing expenses within the Bob Evans Foods segment. 

The noncontinuing factors include: a decline in performance at Mimi's Cafe due, in part, to reduced operational focus resulting from the announcement of the strategic review process; a weather-related impact on guest traffic, sales, labor, and direct operating expenses at Bob Evans Restaurants during the month of December; and one-time costs associated with in-sourcing production of a key refrigerated side dish product line at Bob Evans Foods. 

Furthermore, the company made a strategic decision to shift Bob Evans Foods' marketing spending from the first and second fiscal quarters to the third quarter to better align those expenditures with demand during the key holiday period. 

Reflecting primarily the aforementioned factors, the company expects to report non-GAAP earnings of between $0.51 and $0.57 per share for the third quarter ending January 25, 2013.  

Last year's third quarter results included the benefit of a state income tax settlement equating to $0.05 per diluted share. Further details regarding third quarter performance and a revised outlook for the fourth quarter of fiscal 2013 incorporating the impact of this event, including the transitional support service agreement with the buyer that is not likely to fully offset the costs associated with delivering those services, will be addressed within the company's earnings release for the third quarter of fiscal 2013 to be issued after on February 19, 2013.