Barington Capital intensified its effort to push or changes at Darden Restaurants, Inc. (NYSE:DRI), the owner of Olive Garden and Red Lobster. The activist hedge fund owns a 2% stake in the restaurant operator.
On Thursday, the activist hedge fund engaged the services of Houlihan Lokey, an investment bank, to conduct an independent review on its proposal to enhance the financial performance of Darden Restaurants, Inc. (NYSE:DRI) over the long-term. It also hired MacKenzie Partners, a proxy solicitation, investor relations and corporate-governance consulting firm to provide advice.
Barington Capital encouraged the board and management of Darden Restaurants, Inc. (NYSE:DRI) to explore strategies such as breaking its mature brands (Olive Garden and Red Lobster) and faster growing chains (Longhorn Steak House, Capital Grille, Bahama Breeze, etc). The activist hedge fund also recommended the sale / lease of its real estate assets or spinning off its huge holdings into a publicly traded real investment trust.
Darden could be too large and complex to compete
The activist hedge fund believes that the business operations of Darden Restaurants, Inc. (NYSE:DRI) is too large and complex to compete effectively with its more nimble competitors. Barington Capital said the restaurant operator will be able to boost its long-term performance by improving customer experience, ending future restaurant unit expansion, and capturing efficiency to maximize the return on capital and maintain dividends to shareholders.
Barington Capital also emphasized that Darden Restaurants, Inc. (NYSE:DRI) will be able to enhance its long-term competitiveness by concentrating on developing distinctive brands with loyal customer bases, experimenting with new menu options, and investing in new unit expansion while simultaneously reviewing the possible opportunities to divest or spin off some brands.
Furthermore, the activist hedge fund suggested that the restaurant operator should reduce its annual operating expenses by $100 to $150 million by streamlining its operations, eliminating corporate functions that duplicate brand-level work, and improving its advertising expenditure.
Darden taking steps to reduce expenses
The activist hedge fund was pleased with the latest move of the company to start reducing its expenses. James Mitarotonda, chairman and CEO of Barington Group said, “While we were encouraged by Darden’s recent announcement that it is taking steps to reduce expenses by approximately $50 million a year – a helpful start toward addressing the cost reductions we recommended – we believe there is much more work that needs to be done and in a far more expeditious time frame.”
Barington Capital believes that the stock price of Darden Restaurants, Inc. (NYSE:DRI) will increase by 50% from its current trading levels if its recommendations are implemented completely by the board of the company.
