Activist investor Starboard Value sets sights on Bloomin' Brands
As Barclays analysts report a four-year high for activist investor campaigns in the first half of the year, hedge fund Starboard Value is on the move with a new campaign targeting Outback Steakhouse-parent company Bloomin' Brands (BLMN). Yahoo Finance Executive Editor Brian Sozzi highlights Starboard Value CEO Jeff Smith's previous activist campaigns and the value in investing in Bloomin' Brands.
Video Transcript
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- According to recent data from investment bank Barclays, activist investment has had a strong year so far with over 133 new campaigns started globally in the first half of the year. That's well above the four year average of 108. And while Europe has seen that activity jump 41%, the US has actually seen some of its campaign activity fall by 23%.
But there's no stopping Starboard Value, a hedge fund that has made its name for being an initiator of some major campaigns here. From Macy's to Office Depot, Starboard Value has been an active for well over a decade.
Perhaps one of its most well known activist campaigns, the complete overhaul at Darden's Olive Garden. The hedge fund presented a 20 or-- excuse me-- 294 page plan to cut costs and improve sales by improving food quality, eliminating non-Italian meals, and encouraging the sale of alcohol there.
And according to an exclusive from "The Wall Street Journal," a recent campaign against Bloomin' Brands, the owner of chains including Outback Steakhouse, shows that Starboard Value is not showing any signs of slowing down. And joining us now with more, we've got Yahoo Finance's own executive editor who stuck around just for this.
- Yeah. Can I just say one thing--
- Yes please.
- --about this? So Jeff Smith who's head of starboard. I mean, the Olive Garden campaign really sort of put him on the map, right? But he's done many campaigns since then, but I love that Andrea-- our producer who looked into this-- went back and found that presentation.
- It's great. It's a great read.
- I mentioned in our morning meeting about the salting the pasta water that was like a hallmark of that campaign. She found that page--
- He also called out the headquarters halfway through. He pointed out that Darden built this new $152 million headquarters, and overlooking the water, it was total-- just corporate largesse. But reality is if you are a restaurant CEO-- I'm not going to put Brinker in here. We exclude Kevin Hochman in case he's still watching-- but if you're a restaurant CEO and you've been underperforming, you should be inviting Jeff Smith onto the board.
I've seen this guy change Darden, change Papa John's culturally and operationally. He is a massive unlocking value at a lot of these old school restaurant chains. He just loves restaurants. The guy knows what he's doing. He turns these things around. He's legit.
And you look at Bloomin' Brands, and a source familiar with the matter tells me they're really underperforming. And I think Jeff wants to see an improvement in operations in the company like he wanted to see at Papa John's, like he wanted to see at Darden.
And you go to the company latest 10-Q guys, I mean, you see traffic down at Outback Steakhouse. You see traffic down at Bonefish Grill, which is not one of my favorite chains. And you have Fleming's Prime Steakhouse, traffic down there as well.
Against the backdrop of a time where Fogo de Zhao just got sold for $1.1 billion, Darden came out, bought Ruth's Chris for $715 million, and you have Outback trading at about $2.3 billion market cap.
So there's probably a lot of unvalued value there to be unlocked at Bloomin' Brands. And just from a customer experience standpoint, I remember when Outback opened by me. It was something special. It was a two hour line. This was over 10 years ago. The steak was awesome. Go there now, you get the droopin' onion. It's horrible. I mean, it's a horrible experience.
- Droopin' onion.
- You go on the menu and you get a porterhouse for $37. I'm going to go to Whole Foods tonight and I'm going to get a tomahawk steak for $48. That's about 3 pounds of meat. I want a better experience, I'm going to go out and get steak, I'm going to grill it up myself than go and get a droopin' onion here at Outback and some really bad steak where they've cut the sizes down on them. I mean, It's terrible. It's terrible.
- But you won't get the aesthetic of peanuts on the ground.
- That's Texas Roadhouse, which is also one of my favorite chains.
- Outback used to do that.
- They used to do the peanuts?
- Yeah, they used to do the peanuts.
- Well look, I think if you want to have a disappointing experience, you in fact, go to Outback and overpay. And if you want to leave there smelling like fried food, go to Outback, but it's a disappointing customer experience. You see it in the traffic numbers. You see it in the sales. They have a lot of work to do.
- Rochelle, what say you? Last word.
- I will say, it used to feel like a special experience--
- Yes.
- --to go to Outback Steakhouse. It's in the name. I think the bar is set pretty high. And yes, it's sad. The blooming onion has lost some of its blossom.
- Bonefish is dreadful fish. That chain just needs work, guys.
- Is it just dry? Overcooked?
- I mean, I eat at these places. I used to love it, but they're awful. They're terrible.
- Jeff, get to work please
- "The Wall Street Journal" did not talk about specifically what Smith is going to push for over there Bloomin' Brands, but obviously we have a bit of a roadmap here, provided.
- But a bloomin' onion.
[INTERPOSING VOICES]
- Please, Jeff. Help these guys out, please. Please help them out. Please.
