April 23, 2014 / 12:20 AM / 4 years ago

Darden investor wins backing for vote on Red Lobster divestiture

(Reuters) - Darden Restaurant Inc (DRI.N) will have to call a shareholder meeting to vote on Starboard Value LP’s proposal to delay the company’s plan to spin off its struggling Red Lobster chain, after the activist investor secured the support of a majority of the company’s shareholders.

Starboard has received written requests to call a special meeting from shareholders representing about 55.5 percent of the largest U.S. full-service restaurant operator’s outstanding shares, Starboard Chief Executive Officer Jeffrey Smith said in a letter to the company.

Darden said in December that it planned to spin off or sell the 705-restaurant Red Lobster seafood chain, and said at the time that the transaction would not require a shareholder vote.

Starboard, which owns 5.5 percent of Darden, has urged Darden to delay its plans to spin-off the chain saying it could destroy as much as $800 million of shareholder value.

Starboard’s Smith has asked the company to consider other options to boost value, including slashing operating costs, improving restaurant results and divesting real estate.

An independent inspector will review the requests for the special meeting submitted by Starboard, Darden said in a statement late on Tuesday.

Details about Starboard getting shareholder support were first reported by CNBC, sending shares up 4 percent on the New York Stock Exchange.

“The Red Lobster separation doesn’t make a lot of sense,” Smith said on CNBC’s Squawk on the Street show on Tuesday.

    “Shareholders are voicing their opinions very strongly that they are not in favor.”

    Darden’s plan followed a proposal from another investor, Barington Capital Group, to split the company into two - one with the mature Olive Garden and Red Lobster chains and the other with brands such as LongHorn Steakhouse and Seasons 52.

    Darden has so far resisted pressure to put the fate of the floundering chain to a shareholder vote, saying other alternatives, including those suggested by Starboard and others, were not viable.

    Darden reported in March that same restaurant sales at Red Lobster tumbled 8.8 percent in the quarter ended Feb 23.

    Customer visits at the chain fell in the double-digit percentages in each month of the quarter, chalking up nine straight months of falling traffic.

    Additional reporting by Aman Shah in Bangalore; Editing by Savio D'Souza; Editing by Lisa Shumaker

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