Activist investor Barington Capital is lobbying for changes at popular steak restaurant Outback Steakhouse.
James Mitarotonda, CEO of the hedge fund, is calling on Bloomin' Brands to spin off three of its smaller brands into a new company and let Outback stand on its own.
"Outback was once the best performing steakhouse chain in the United States," Mitarotonda wrote in a letter to Bloomin' CEO Elizabeth Smith. "However, over the last five years, we believe that management lost their focus and has ceded leadership in the steakhouse category to Texas Roadhouse."
Mitarotonda said Outback has failed to keep up with the pace of innovation in the restaurant industry and does not provide the same level of hospitality as its competitors.
Bloomin' shares hit an all-time high of $27.27 in November 2013, but were trading just under $21, more than 23 percent below their peak, on Wednesday ahead of the release of Barington's letter. Later in the day the shares were up 4.8 percent to $21.90.
Bloomin' currently operates four brands: Outback, Fleming's Prime Steakhouse, Bonefish Grill and Carrabba's Italian Grill. Mitarontonda said these brands are so operationally different that it is splitting the company's focus and impeding operations.
"Focusing on fewer brands is a well-proven strategy to improve execution," he said.
In addition to spinning off Outback, Mitarontonda suggested that Bloomin' reduce excessive corporate and advertising expenses, amp up its guest experience and customer loyalty and add an independent board chair to oversee management.
Mitarontonda said he expects Bloomin' shares could double if the company follows its suggestions.
Based on a December filing with the Securities and Exchange Commission, Barington Capital owned 310,000 shares, valued at about $6.6 million, or a less than 1 percent stake in Bloomin'. The hedge fund didn't disclose the size of its current holdings.
Jana Partners, another activist investor, disclosed a 9 percent stake in Bloomin' in November, saying the shares were undervalued.
"Bloomin' Brands welcomes open communications with shareholders and constructive input that may advance the Company's goal of enhancing value," the company said in a statement Wednesday. "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 is set to report fourth-quarter earnings before the opening bell on Feb. 22.