Starboard Value LP launched a fight to take over the board of Darden Restaurants Inc (DRI.N), saying the planned sale of Darden's Red Lobster seafood chain was "a value-destructive transaction" that ignored the rights of shareholders.
Darden said last week it would sell Red Lobster to private equity firm Golden Gate Capital for $2.1 billion, defying Starboard and another activist investor that had opposed the sale of the struggling chain.
Starboard, which said on Thursday that it had increased its stake in Darden to about 6.2 percent from 5.5 percent, has been leading a shareholder effort to force the company to hold a special meeting for a vote on the sale.
Darden has said the deal is expected to close in the quarter ending August and is not subject to shareholder approval.
Starboard condemned Darden's board for ignoring the request to hold a special meeting and said it believed "wholesale board change is required to reverse the years of poor performance, poor governance and shareholder value destruction."
A Darden spokesman said in an email that the board would consider the Starboard nominations "in due course."
Darden, which also operates Olive Garden, LongHorn Steakhouse and Capital Grille restaurants, has said it will file a preliminary proxy statement later this month for the requested meeting and will convene it "as promptly as practicable."
In a letter to shareholders, Starboard said that because of the tax-inefficient way the deal was structured, Darden netted only $100 million from the sale of the Red Lobster business after taking into account $1.5 billion it believed could have been realized from the tax-efficient sale of real estate.
Starboard said that on this basis, the sale of the operating business was done at multiple of less than 1-time earnings before interest, tax depreciation and amortization.
"The fact that the company would refer to this deal as being done at 9x EBITDA demonstrates management and the board's fundamental lack of understanding of the assets they sold and a predilection for misleading shareholders," Starboard said.
The investor said it had identified significant cost-saving opportunities and ways to improve revenue through improved food quality, speed of service and sales of higher-margin fare.
"Taken together, we believe all of these initiatives, if executed successfully, could yield substantial improvements in earnings, cash flow and shareholder value."
Starboard said it would nominate a full slate of 12 board candidates for election at Darden's annual meeting, the date of which has not been announced.
Nominees include Brad Blum, who Starboard said had turned around Olive Garden when he headed the chain between 1994 and 2002.
Another activist investor, Barington Capital, which represents shareholders holding more than 2 percent of Darden, has been pressing Darden to combine Red Lobster and Olive Garden into one company, and its higher-growth LongHorn and Capital Grille operations into another.
Darden's shares have fallen about 4 percent since the Red Lobster deal was announced.
(Reporting by Arnab Sen and Aurindom Mukherjee in Bangalore; Editing by Ted Kerr)