Darden Restaurants, Inc. (NYSE:DRI)’s move to separate its Red Lobster chain would deprive the parent company of almost half of its real estate, activist investor Starboard Value LP said today.
The activist investor’s Chief Executive Officer was speaking at the Active-Passive Investor Summit in New York.
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This is the second part of a short series on Michael J. Mauboussin's research document reflecting on 30 years of Wall Street analysis published in 2016. Q3 2020 hedge fund letters, conferences and more The document outlined Mauboussin's observations of successful investors throughout his three decades on the Street. This article starts at point six. Read More
Meanwhile, citing known sources, CNBC has just reported that Starboard Value LP has won the consent of 54% of Darden Restaurant’s shareholders to call a special meeting.
Starboard pushes to abandon ill-conceived plan
In February, Starboard Value LP sent a letter to the leadership of Darden Restaurants, Inc. (NYSE:DRI) reiterating its position that the current plan of the restaurant operator to spin off or sell Red Lobster is not in the best interest of shareholders and it could potentially destroy substantial value.
The activist hedge fund encouraged the board of directors of Darden Restaurants, Inc. (NYSE:DRI) to step back, listen to the recommendations of shareholders, and do the right thing. It also expressed intention to discuss the composition of the board of restaurant chain citing its ‘dismal historical performance’. The hedge fund emphasized that absolute changes in the board composition are necessary to return the company to profitability.
The activist investor also asked the restaurant chain to stop its “ill-conceived and potentially value destructive” plan to separate Red Lobster.
Starboard Value said it would seek the support of its fellow shareholders to remove a majority of the members of the board of Darden Restaurants, Inc. during the 2014 annual meeting.
Darden’s spinoff is ‘just a bad idea’
While addressing the Active-Passive Investor Summit today, Jeff Smith said Darden’s plan to spin off Red Lobster is ‘just a bad idea’ that would create an underperforming stock and deprive the parent company of almost half of its real estate. Instead he asked Darden to consider the hedge fund’s proposal to slash operating costs and unlock value in its real estate via a sale or real-estate investment trust transaction. He pointed out that the conglomerate lacks focus and incurs higher costs than the rest of the industry.
Beth Jinks of Bloomberg points out that activist investors tend to buy at least 5% of a company’s stock and flag their intention to actively engage corporate executives and directors by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.
Won consent of 54% of shareholders
Citing known sources, Jeff Morganteen of CNBC has just reported that the hedge fund obtained consent of 54% of shareholders of the restaurant chain. Interestingly, earlier while speaking at the Active-Passive Investor Summit, Starboard’s CEO noted obtaining a 50% threshold was a high hurdle, though he remained confident of his success.