THE WALL STREET
Second Activist to
Seek Broad Darden Breakup
By David Benoit
kitchen is about to get hotter at
Darden Restaurants Inc.
after announcing a plan to spin off or sell its Red Lobster chain, the
restaurant operator is expected to face a second activist shareholder
calling for a more dramatic breakup of the company and for splitting
off its vast real-estate holdings.
Starboard Value LP has taken a 5.6% stake in the company, which it
plans to disclose in a federal filing Monday, according to people
familiar with the matter.
investment firm thinks the company's move to cast off Red Lobster
falls short of what is needed to boost Darden's shares, the people
do not comment on specific discussions with shareholders, but in this
instance, we haven't been contacted by Starboard," a spokesman for
Darden said in an email Sunday.
Darden also owns the Capital Grille and LongHorn Steakhouse chains,
among other brands.
October, Barington Capital Group LP began pushing Darden to carve its
Red Lobster and Olive Garden chains into a separate company, put its
real-estate holdings into a separate real-estate investment trust and
Starboard will push for a slightly different reorganization plan,
according to people familiar with its intentions. Starboard wants the
company's first move to be creating a REIT for its property holdings,
which the firm believes would create value for shareholders. Then, it
wants Darden to combine Red Lobster, Olive Garden and LongHorn
Steakhouse into one company and its remaining smaller, faster-growing
chains into another.
Darden has already explored options for its real estate, but last week
rejected Barington's suggestions for those assets along with a broader
breakup. Chairman and Chief Executive Clarence Otis said on a
conference call that creating a REIT, or conducting a so-called
sale-leaseback of the company's property, doesn't make sense.
Starboard, spun out of investment bank Cowen Group Inc. in March 2011,
is known for launching frequent activist campaigns. This year it won a
battle at Office Depot Inc. But it failed in its attempt to find a
better deal for pork producer Smithfield Foods Inc. than its
now-closed $4.7 billion sale to Shuanghui International Holdings Ltd.
two activists aren't working together on Darden, though Starboard will
seek talks with other shareholders and the company after reporting the
stake, the people said. Activists often pile into the same stock and
push for change from several angles, which can ratchet up the pressure
on a company and its management. Barington has said it is in a group
that holds just over 2% of Darden shares.
Starboard, which frequently seeks board seats, also believes Darden
needs to improve its operations and become more efficient, the people
said. They said it sees room for more dramatic costs cuts than those
that have been planned by the company.
Darden has hired
Goldman Sachs Group Inc. for advice amid the pressure from
Barington and as it conducted a review that led to its plan to split
off Red Lobster, which has underperformed expectations. The company
said separating Red Lobster would help it refocus, and that keeping
Olive Garden with the rest of its brands makes strategic sense.
Darden also announced plans to cut costs, slow expansion and forgo
Street analysts applauded the plan to shed Red Lobster and cut costs,
and some have come out against a broader breakup.
Darden "announced several strategic changes that we believe are a move
in the right direction," Sterne Agee analysts wrote last week.
Darden's shares dropped after the company announced its plans
Thursday, closing down about 3.6% before gaining slightly Friday. It
ended the week at $51.09, up 13% on the year.
Starboard took advantage of Thursday's decline to accumulate more
shares and cross the 5% threshold requiring disclosure after owning
the stock for several months, the people said.
Write to David Benoit at
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