(Adds share price, no response from company, details on board)
By Svea Herbst-Bayliss
BOSTON, Feb 21 (Reuters) - Activist investor Barington Capital Group, L.P. wants Outback Steakhouse owner Bloomin' Brands Inc to spin off three smaller restaurant chains into a new company, cut costs and improve diners' experiences, steps it says can double its flagging share price.
In a letter to Bloomin' Brands Chairman and Chief Executive Officer Elizabeth Smith, the hedge fund urged the company to separate Bonefish Grill, Carrabbas and Flemings into a new company and run Outback independently. It also asked for changes on the board, calling the centralized structure inefficient and company costs too high.
Bloomin' Brands said in a statement it welcomes input from shareholders, and added that management and the board have a "record of taking deliberate actions to drive long-term value creation."
There is little overlap between Bonefish Grill, an upscale casual seafood chain, Flemings, an upscale steakhouse chain and Outback, a more casual steakhouse chain, the hedge fund said, arguing that a split of the brands would improve management focus on each unit's needs.
"Bloomin' has the potential to significantly improve its financial and share price performance," wrote Barington's founder James Mitarotonda, who scored a big payday by investing in Darden Restaurants five years ago.
Bloomin's share price could roughly double to $41 a share from Tuesday's closing price of $20.89, if the suggestions are followed, the hedge fund said. Shares climbed 5.5 percent on Wednesday, after the Barington letter was released and a day before the company's earnings report.
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 made headlines by pushing for new leaders at some of its portfolio companies, is also asking Bloomin' to split the CEO and chairman of the board roles, appoint an independent board chair and make all directors stand for election annually.
It is the first activist to go public with its requests.
Late last year, Jana Partners, a prominent activist hedge fund 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.
Jana's November filing helped push the stock price higher late last year as investors banked on significant changes, including possibly a sale. (Reporting by Svea Herbst-Bayliss; Editing by Kim Coghill and David Gregorio)