Investor wants Outback Steakhouse owner to spin off other brands

Barington Capital is pushing Bloomin' Brands to spin off Carrabba's, Fleming's and Bonefish Grill.

An activist investor wants Bloomin’ Brands to be Bloomin’ Brand.

Barington Capital Group is pushing the Tampa, Fla.-based company to spin off the three brands it operates that are not named Outback Steakhouse: Bonefish Grill, Carrabba’s Italian Grill and Fleming’s Prime Steakhouse & Wine Bar.

The recommendation was part of a letter from the investment firm’s founder, James Mitarotonda, that included a broad set of ideas for the casual-dining operator.

“We believe that the company’s business has become unnecessary complex,” Mitarotonda wrote. He wrote that Bonefish, Carrabba’s and Fleming’s are “very different businesses” than Outback.

“We believe that the company’s attempt to operate these divergent brands under one corporate entity has negatively impacted strategic focus and operating execution at Outback as well as the company’s other brands.”

In a statement on Wednesday, Bloomin’ said it “welcomes open communications with shareholders and constructive input that may advance the company’s goal of enhancing value.”

“The Bloomin’ Brands board of directors and management team have a record of taking deliberate actions to drive long-term value creation and will continue to take actions to advance this objective,” the company said.

The letter from Barington comes as pressure mounts on Bloomin’ to explore some type of sale. Last year, the activist Jana Partners bought up the company’s shares and suggested in an SEC filing that it would push Bloomin’ to explore a potential sale.

The company has routinely fended off suggestions it should consider selling more of its chains. Bloomin’ sold off the seafood chain Roy’s for a modest $10 million back in 2015. CEO Liz Smith has regularly said the company’s portfolio of chains is “tightly edited.”

Barington in 2013 began pushing Darden Restaurants to make significant operational changes. Ultimately, the company sold Red Lobster, and another activist in Starboard Value came on board to recommend changes, too. That activist then won every seat on Darden’s board in 2014.

In this instance, Barington appears to be backing a push for changes by Jana Partners.

In his letter, Mitarotonda argues that Bloomin’ has had a “sustained period of underperformance” relative to other restaurant companies and the broader stock market.

He said that the company could improve its results by improving the guest experience to increase sales and loyalty, reducing “excessive expenses,” including advertising and corporate overhead, and improving corporate governance.

Mitarotonda argues that Outback has not kept up with rivals and has “ceded leadership in the steakhouse category to Texas Roadhouse.”

“We believe that Outback has failed to keep up with the pace of innovation in the restaurant industry or provide its customers with the same level of hospitality as can be found at Texas Roadhouse,” he said.

Mitarotonda also argued that the company has too many unallocated corporate expenses and says that it has far more corporate employees (950) than rivals such as Chili’s owner Brinker International (567), Texas Roadhouse (553) or The Cheesecake Factory (450).

He said that the overhead and excessive advertising has hurt operational execution and brand accountability, similar to Barington’s complaints about Darden in 2013—which Darden has since fixed, Mitarotonda said.

“We believe that the management of Bloomin’ has made some of the same mistakes that Darden’s prior management team made, and that they should follow some of the same steps that the new management of Darden has taken to improve performance,” Mitarotonda said.

He also said that Bloomin’ would benefit from the addition of new board members, and backs some people mentioned by Jana Partners in its filings, including Neal Yanofsky, Dunkin’ Brands’ former president of international, as well as former Gap CEO Glenn Murphy and former Fifth & Pacific Companies CEO William McComb.

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