THE WALL STREET
for Split of Darden Restaurants
Barington Capital Wants
to Separate Red Lobster, Olive Garden From Rest of Company
By Dana Mattioli
An activist investor is
hungry for change at
Darden Restaurants Inc.
Hedge fund Barington Capital Group LP, along with other investors, has
taken a 2.8% stake in Darden, the owner of Olive Garden, Red Lobster
and six other restaurant chains. The fund is pushing for Darden to
form two separate companies, among other changes, according to people
familiar with the matter.
New York-based Barington has held talks with the restaurant operator's
management. The investor group argues that Darden should create one
company with its Olive Garden and Red Lobster restaurants, and another
with its higher-growth chains, which include Capital Grille, the
It isn't clear what other
investors are in the group, which also has urged the company to reduce
costs faster than it already is and to try to cash in on its real
estate. Based on Darden's current market value of about $6.47 billion,
the group's stake is worth roughly $181 million.
"We believe that Darden has the potential to deliver significantly
higher returns to shareholders," said a Barington spokesman.
A spokesman for Darden said the company "welcomes input on enhancing
shareholder value," adding that its board "will take the time
necessary to thoroughly evaluate Barington's suggestions, just as the
company does for any of its shareholders."
Based in Orlando, Fla., Darden has more than 2,100 restaurants in
North America, which, in addition to the other chains include the
LongHorn Steakhouse, Yard House, Eddie V's Prime Seafood, Seasons 52
and Bahama Breeze brands. The company owns the land at more than 1,000
of its restaurants, according to financial filings. Other companies
have extracted value from their real estate by creating real-estate
investment trusts or using sale-leaseback transactions.
Darden has been hurt by economic weakness as some consumers shift to
lower-priced fast-food restaurants, while others gravitate toward
competing chains like
that don't have table service and therefore offer the prospect of
quicker meals—and no tips.
At Olive Garden—Darden's biggest chain by revenue—same-restaurant
sales dropped 4% in the first fiscal quarter, while they fell 5.2% at
The company also has been hit with higher food and labor costs. During
its most recent earnings call, Darden said that it would aim to save
about $50 million annually.
Reflecting the challenges the company faces, its stock price had
fallen about 15% over the past 12 months. It was little changed at
$46.35 around midday Wednesday before surging more than 6% on The Wall
Street Journal's report of the Barington group's stake.
In its most recent quarter, Darden's overall sales grew 6.1% to $2.16
billion, and the company posted a $70.2 million profit. Sales at its
higher-end chains have been more robust as well-off consumers continue
dining at upscale restaurants. Same-store sales at Darden's higher-end
chains rose 0.5% in the quarter.
Barington was co-founded in 1992 by James Mitarotonda , and was named
for Bari, Italy, near where he was born. Mr. Mitarotonda, now the
fund's chairman, president and chief executive, had previously worked
in the retail and financial-services industries, and participated in
the retail-management executive training program at Bloomingdale's,
according to Barington's website.
Barington's portfolio has around a dozen companies at any given time.
Earlier this year the hedge fund built up a stake in Jones Group Inc.,
pushing for the retailer to reduce costs, add directors and sell parts
of its portfolio. Jones is now in the late stages of an auction of the
entire company, according to people familiar with the matter.
In 2006, the fund contacted apparel maker Warnaco Group Inc.'s
management and suggested that the company sell non-core brands and
reduce expenses. Warnaco later sold its Anne Cole, Ocean Pacific and
—Julie Jargon contributed to this article.
Write to Dana Mattioli at
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