Starboard Value LP, which owns approximately 5.5 percent of Darden’s outstanding common stock, recommended in a Jan. 21 letter that the casual-dining operator delay its spin-off of Red Lobster in pursuit of alternative options, such as a company-wide cost-reduction plan or sale of the company’s real estate.
“We believe the company should more fully evaluate all available operational, financial and strategic alternatives for Darden in order to create and execute on a comprehensive plan to address all aspects of the business and to ensure the best possible outcome for all shareholders,” Starboard wrote. “This evaluation should include consultation with the company’s financial advisers and discussions with shareholders such as Starboard.”
The recommendations follow a September push from Barington Capital Group, LP, which holds more than 2 percent of the company’s shares, for Darden to create two independently managed, publicly-traded restaurant operating companies that would separate Olive Garden and Red Lobster from Darden’s higher-growth brands of LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52 and Eddie V’s Prime Seafood. Additionally, the group recommended that Darden transfer its real estate assets, valued at approximately $4.2 billion, into stand-alone, publicly-traded real estate investment trusts.
In a Jan. 21 statement, Darden insisted its comprehensive review is in its shareholders’ best interest.
“Darden’s board of directors and management team are focused on creating value for all Darden shareholders,” the company said. “While we appreciate the views of our shareholders, we have completed a comprehensive evaluation of alternatives available to enhance shareholder value, including those suggested by Starboard and others. That review included advice from financial and legal advisers that are knowledgeable on these matters, as well as input from Darden shareholders.”
On Dec. 19, Darden announced the comprehensive strategic review that included a tax-free spin-off or sale of Red Lobster, reducing new unit growth at Olive Garden and LongHorn Steakhouse, lowering capital expenditures and forgoing acquisitions of additional brands, increasing operating support cost savings, increasing return of capital to shareholders, and refining compensation and incentive programs.
“Based on this review, we believe the comprehensive plan we announced in December is in the best interest of all Darden shareholders, and we are moving forward with that plan,” Darden said in its Jan. 21 statement. "We are confident that these steps, together with actions we are taking to enhance guest experiences and reinvigorate demand, will lead to improved performance in our restaurants and substantially increase value for all Darden shareholders.”