(Recasts, adds company comment, background)
March 21 Darden Restaurants Inc, under
scrutiny from two activist investors over a plan to sell or spin
off its Red Lobster chain, on Friday resisted pressure put the
divestiture of the struggling seafood restaurants to a
Shares in Orlando-based Darden were up 2.9 percent to $50.73
in early trading after it also reported fiscal third-quarter
results in line with its previously lowered expectations.
Still, the results showed a severe deterioration at Red
Lobster, which accounts for an estimated 30 percent of revenue
at Darden, whose other chains include Olive Garden and the
Darden announced plans on Dec. 19 to spin off or sell its
705-restaurant Red Lobster chain. The company said the
transaction would not require a shareholder vote and could close
in the fiscal year beginning May 26.
Activist investors Starboard Value LP and Barington Capital
Group are pressing Darden to move more boldly to improve
performance at the company, the biggest U.S. operator of
Starboard, which owns about 5.5 percent of Darden shares,
is soliciting support for its bid to hold a special shareholder
meeting to vote on Darden's Red Lobster plan.
Darden, which canceled its analyst and investor meeting
slated for later this month, said it prefers to have one-on-one
discussions with investors.
"We believe that shareholders should continue to engage
directly with the company and should not view a special meeting
as a substitute for that ongoing two-way engagement," Darden
Chief Executive Officer Clarence Otis said on a conference call
The activists' calls for more robust interventions gained
urgency after Darden warned earlier this month that closely
watched same-restaurant sales at Red Lobster and Olive Garden,
its marquee chains, had fallen sharply in the latest quarter due
in part to severe winter weather.
Darden said on Friday that sales at established restaurants
tumbled 8.8 percent at Red Lobster and 5.4 percent at Olive
Garden in the third quarter ended Feb. 23.
Red Lobster suffered double-digit percentage declines in
customer visits in each month of the latest quarter, chalking up
nine straight months of falling traffic.
Darden's quarterly net income was down 18 percent to $109.7
million, or 82 cents per share.
Barington, which represents a group of shareholders that
holds more than 2 percent of Darden shares, wants the company to
split its businesses. One company would operate the mature Olive
Garden and Red Lobster chains. The other would own brands like
LongHorn Steakhouse, Seasons 52, Capital Grille and three
It also is pushing Darden to explore creating a publicly
traded real estate investment trust (REIT) to "unlock the value"
of its property holdings, which it has valued at about $4
billion before leakage costs.
Barington also wants Darden's board to split the chairman
and CEO roles. Otis has been CEO since November 2004 and
chairman since November 2005.
Otis orchestrated Darden's acquisitions of LongHorn
Steakhouse, Capital Grille, Eddie V's and Yard House. Barington
and other critics say those moves led to a lack of focus,
bloated operating costs and roughly 18 months of market share
losses at its three biggest brands.
(Reporting by Lisa Baertlein and Aditi Shrivastava; Editing by
Savio D'Souza and Chizu Nomiyama)