SAN FRANCISCO A group of shareholders has sued Darden Restaurants Inc, accusing the company of changing corporate bylaws to try to block investors' right to vote on a plan to sell or spin off its Red Lobster dining chain, the Wall Street Journal reported on Saturday.
The lawsuit comes as activist investors step up the pressure on Darden, which is struggling to reverse customer declines amid a broader slump in the casual-dining industry.
Hedge fund and activist investor Starboard Value LP, which owns roughly 5.5 percent of Darden, has urged the company to reconsider its intention of unloading the struggling seafood chain and called for a special shareholder vote on the matter.
Barington Capital Group LP, which represents a group of shareholders that hold more than 2 percent stake, wants the company to split itself in two, separating mature and struggling chains such as Red Lobster and Olive Garden from faster-growth restaurants.
Neither was involved in the lawsuit.
According to the Journal, the lawsuit, filed in Florida by pension funds for the City of Birmingham, Alabama, seeks to invalidate changes made last month to the company's bylaws.
The lawsuit claims that Darden now requires shareholders who file proposals or nominate directors to disclose more information about their intentions, and their discussions with other shareholders. It can also now adjourn any shareholder meeting indefinitely.
Darden said in a statement that the lawsuit has no merit and the company will vigorously defend against it.
"The changes do not impair our shareholders' ability to call a special meeting, nominate individuals for election to the board or propose new business in accordance with our bylaws and applicable law," Darden said. "These bylaw amendments are valid, legal and in the best interest of Darden and the company's shareholders."
Influential proxy advisors Institutional Shareholder Services and Glass Lewis on Friday expressed support for Starboard's request to convene a special meeting of shareholders to vote on Darden's intention to spin off Red Lobster. Darden, which canceled an analyst and investor meeting slated for March, has said it prefers to have one-on-one discussions with investors.
Darden, the largest U.S. operator of full-service restaurants, is struggling to turn things around. Sales at established restaurants tumbled 8.8 percent at Red Lobster and 5.4 percent at Olive Garden in the third quarter ended February 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.
(Reporting by San Francisco newsroom; editing by Gunna Dickson)