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May 16 Darden Restaurants Inc said on
Friday 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
Darden said the sale was not subject to shareholder approval
and should close in the quarter ending in August. Its shares
were down 3.9 percent at $48.73 in afternoon trading on the New
York Stock Exchange.
Hedge fund Starboard Value LP, 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
"The announced sale woefully undervalues Red Lobster and its
real estate assets," Starboard Chief Executive Officer Jeffrey
Smith said in a statement on Friday.
Starboard successfully led a shareholder effort to force
Darden to hold a special meeting and vote on the Red Lobster
divestiture plan. However, the meeting has not yet been set by
Darden and some shareholders are concerned the deal will close
before investors can weigh in.
Darden on Friday said it would file a preliminary proxy
statement later this month for the special meeting and to
convene it "as promptly as practicable."
That plan did not satisfy Starboard.
"It appears that Darden has instead sold Red Lobster in a
rushed transaction at a severe discount," Smith said.
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
Darden said it explored several options for Red Lobster, but
concluded the Golden Gate deal maximized value.
Darden expects net cash proceeds of about $1.6 billion. It
plans to use about $1 billion of that to retire debt and the
remainder to buy back stock in fiscal 2015.
Red Lobster accounted for about 31 percent of Darden's total
revenue in 2013. Its sales at established restaurants have
fallen in five of the last six quarters.
Another activist investor, Barington Capital Group LP, 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,
Barington CEO James Mitarotonda in an email on Friday said
the deal represented a "fire sale" price and criticized the
company for being unresponsive to shareholder concerns.
Real estate investment trust American Realty Capital
Properties Inc said it would buy more than 500 of Red
Lobster's roughly 700 restaurants from Golden Gate and then
lease them back to Golden Gate in a $1.5 billion deal.
Goldman Sachs & Co is Darden's exclusive financial
adviser, while Latham & Watkins is its legal counsel.
Deutsche Bank Securities Inc and Jefferies LLC
are Golden Gate's financial advisers.
(Reporting by Maria Ajit Thomas and Shailaja Sharma in
Bangalore and Lisa Baertlein in Los Angeles; Editing by Savio
D'Souza, Lisa Von Ahn and Diane Craft)