Owing to the success of its LongHorn Steakhouse and Capital Grille chains, Darden Restaurants, Inc. (NYSE:DRI) has stated its intention to spin off both its Red Lobster and Olive Garden restaurants. In addition to the aforementioned restaurants, Darden also owns the Bahama Breeze, Seasons 52, and Eddie V’s Prime Seafood chains.
Earlier today in a public letter to Darden Restaurants, Inc. (NYSE:DRI), Starboard Value, which owns a 5.5% stake in Darden, announced that it was looking for a special shareholders meeting in order to vote against Darden’s plans to spin off the Red Lobster chain that is under-performing and stagnant in its growth.
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The letter stated that it would need half of Darden’s shareholders on board with its plan to stop the spinoff in order to force a special meeting where the spinoff would be put to a vote.
Starboard nor Darden is happy
Starboard pulled few punches in its criticism of Darden when it stated that Darden Restaurants, Inc. (NYSE:DRI)’s management and board have a “track record of poor performance and poor decision-making.”
“We believe the Red Lobster separation would not only be suboptimal, but may ultimately prove to be value destructive – potentially even worse for shareholders than the status quo,” Starboard said in its letter. “It appears that the proposed plan is a hurried, reactive attempt, in the face of shareholder pressure, to conveniently cast off the weight of the struggling Red Lobster business, rather than address the company’s serious operational issues head-on through increased management focus,” the letter continued.
Starboard is not the only shareholder unhappy with the company. The activist hedge fund Barington Capital Group criticized the spinoff last month but for different reasons. Barington doesn’t believe that the spinoff goes far enough and would like the company broken up more drastically.
Darden Restaurants, Inc. (NYSE:DRI) responded to Starboard on Monday morning.
“Darden’s board of directors and management team are focused on creating value for all Darden shareholders, and we are confident in the actions we are taking to deliver on this responsibility, including our previously announced initiatives,” said a Darden spokesperson in a statement today.
With over 2,100 restaurants and 200,000 employees, Darden is the world’s largest full-service restaurant company and was itself spun off in 1995 by General Mills, Inc. (NYSE:GIS).