Bob Evans 20% Surge, Explained

Shares of Bob Evans Farms Inc BOBE soared by more than 20 percent Wednesday and hit a new 52-week high of $60.95 after the company announced it will sell its restaurant unit for $565 million.

Gadfly's Tara Lachapelle noted that the sale of Bob Evans' restaurant chain follows an activist campaign by Sandell Asset Management, which has been pushing the company to rid its namesake restaurant chain so it can focus solely on its more lucrative packaged-food business. The timing couldn't be better for Bob Evans' shareholders, as the restaurant industry ended 2016 at the weakest levels in three years.

Net proceeds from the deal will leave Bob Evans with $475 to $485 million and will be allocated towards repayment of debt and a special dividend. In addition, the company's board also approved increasing the ongoing share buyback program to $100 million through the calendar year.

As part of the deal, Bob Evans will also acquire Pineland Farms Potato Co for $115 million under the assumption sales of potato based side dishes will account for two-thirds of the company's sales volume by 2020.

Lachapelle suggested Bob Evans' management made a smart move in announcing both transactions at the same time as it shows management has a growth plan and diminishes potential criticism that management divested the wrong half of the company.

In other words, Bob Evans just "served up just what investors needed."