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Activist plans to report independent analysis of long term investment value


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Note: The copy of the article below is a revised version the original that was distributed to Forum participants shortly after its publication. The revision includes a different calculation of stock price change in the concluding sentence.


Source: New York Times DealBook, November 21, 2013 article

Hedge Funds |

Activist Pushing for Change at Darden Hires Outside Advisers


Phil Marino for The New York Times

Analysts broadly agree that Darden should slow the opening of new Olive Garden restaurants.

The activist hedge fund pushing for change at Darden Restaurants signaled on Thursday that it was ramping up its pressure.

Barington Capital, which it owns over 2 percent of the restaurant group’s shares, announced that it has hired the investment bank Houlihan Lokey to conduct “an independent review” of its recommended changes to the company’s strategy.

In perhaps a more intriguing move, Barington said that it had also hired MacKenzie Partners, a proxy soliciting firm often used in board fights.

The move comes a month after the hedge fund publicly disclosed a letter that it had sent to Darden’s board urging the company to break itself up into as many as three separate businesses. The plan includes separating the mature Olive Garden and Red Lobster chains from faster-growing brands like LongHorn Steakhouse and the Capital Grille as part of an effort to cut over $100 million in costs and simplify the restaurant group’s structure.

Barington says that its initiatives could bolster the company’s stock price by up to 50 percent.

“Although Darden’s performance has been disappointing over the past few years, we are convinced that the recommendations we shared with the company’s management team in June can meaningfully enhance the long-term profitability of Darden,” James A. Mitarotonda, Barington’s chairman and chief executive, said in a statement on Thursday.

For now, relations between Darden and Barington remain cordial, according to a person briefed on the matter. The hedge fund — which prides itself on quietly and constructively working with its targets — is hoping for a peaceful resolution. Mr. Mitarotonda added in his statement that his firm is “committed to doing whatever we can to assist the company in improving long-term shareholder value for the benefit of all Darden shareholders.”

But investors and analysts are likely to see the hiring of Houlihan and MacKenzie as a way to add pressure on the company’s board to widen the scope of its own turnaround plan.

It’s unclear whether Barington has garnered significant support from the investment community. While analysts broadly agree that Darden should tighten operations at its core Red Lobster and Olive Garden restaurants, such as by slowing the opening of new locations and cutting costs, some have expressed skepticism that separating the brands would create value.

Still, shares in Darden have risen over 16 percent since word of Barington’s efforts emerged. They closed on Wednesday at $52.96.

Copyright 2013 The New York Times Company


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