BOSTON, Feb 21 (Reuters) - Activist investor Barington Capital is pushing restaurant group Bloomin' Brands Inc. to spin off three smaller brands into a new company, cut costs and improve diners' experiences to boost a flagging share price which it believes could double.
In a letter to Bloomin' Brands Chairman and Chief Executive Officer Elizabeth Smith, the hedge fund urged the company to spin off Bonefish Grill, Carrabbas and Flemings into a separate company and run Outback Steakhouse independently.
There is little overlap between Bonefish Grill, an upscale casual seafood chain, Flemings, an upscale steakhouse chain and Outback, a more casual steakhouse chain, said the hedge fund, which scored a big payday by investing in Darden Restaurants five years ago.
It blamed Bloomin's centralized structure and high costs for its recent sluggish stock price performance.
"Bloomin' has the potential to significantly improve its financial and share price performance ... by implementing the recommendations we have outlined above," James Mitarotonda, who has run the New York-based hedge fund since 2000, wrote.
Bloomin's share price could roughly double to $41 a share from Tuesday's closing price of $20.89, if its suggestions are followed, the hedge fund said.
The hedge fund also urged the company to appoint an independent board chair to help watch over management more effectively and represent shareholder interests.
While Barington sees a bright future for the restaurant group, it says its past has been clouded by weakening same store sales, ineffective advertising, high costs, and a failure to win customers' loyalty.
Outback Steakhouse's rival Texas Roadhouse, for example, woos diners by immediately serving freshly baked bread, Mitarotonda wrote to Smith.
Over the last three years, Bloomin's stock price has dropped 14.4 percent, lagging far behind peers' 33. 1 percent gain and the Standard & Poor's 500 Index' 37.8 percent gain.
Barington, which has made headlines by pushing for new leaders at some of its portfolio companies including Avon, is the first activist investor to make its calls for improvements at Bloomin' Brands public.
Late last year, Jana Partners, a prominent activist hedge which earned hundreds of millions on its investment in Whole Foods, took a nearly 9 percent stake in Bloomin' Brands.
In a filing made in November, the firm said it plans to have discussions with management and entered into agreements with executives who might run for board seats.
The filing alone, helped push the stock price higher late last year as investors are banking on significant changes, including possibly a sale. (Reporting by Svea Herbst-Bayliss; Editing by Kim Coghill)