Darden Restaurants Inc (DRI.N) 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 chain.
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 shareholder value.
"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 investors."
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, into another.
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 ARCP.O 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 (GS.N) is Darden's exclusive financial adviser, while Latham & Watkins is its legal counsel.
Deutsche Bank Securities Inc (DBKGn.DE) 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)