Planned sale of Red Lobster irks shareholders

May 16, 2014
RESTAURANTS
Red Lobster deal irks shareholders

Darden Restaurants said Friday that it would sell Red Lobster to private equity firm Golden Gate Capital for $2.1 billion in cash, defying activist investors who opposed plans to shed the struggling seafood chain.

Darden said the sale was not subject to shareholder approval and should close in the quarter ending in August. Its shares closed down 4.3 percent at $48.49.

Hedge fund Starboard Value, which owns about 5.5 percent of Darden’s outstanding shares, opposed a sale or spinoff of Red Lobster, saying it could wipe out as much as $800 million of shareholder value. “The announced sale woefully undervalues Red Lobster and its real estate assets,” Starboard chief executive Jeffrey Smith said Friday.

Starboard successfully led a shareholder effort to force Darden to hold a special meeting and vote on the Red Lobster divestiture plan. But the meeting has not yet been set by Darden, and some shareholders are concerned the deal will close before investors can weigh in.

Another activist investor, Barington Capital Group, which represents a group of shareholders that hold more than 2 percent of Darden, had pressed Darden to put its more-mature Red Lobster and Olive Garden chains into one company and its higher growth restaurants, including LongHorn Steakhouse and Capital Grille, into another.

Barington chief executive James Mitarotonda said the deal represented a “fire sale” price and criticized the company for being unresponsive to shareholder concerns.

In a note titled “Who knew lobsters had middle fingers?” Janney Capital Markets analyst Mark Kalinowski wrote: “Clearly today’s announcement is a thumb in the eye of activist investors.”

— Reuters

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