Starboard Value LP has launched a proxy fight to oust the board of directors of Darden Restaurants, Inc. (NYSE:DRI) after the restaurant operator agreed to sell Red Lobster, its struggling seafood chain, to private equity firm Golden Gate Capital for $2.1 billion. Starboard has hired the proxy solicitation firm Okapi Partners, which had a recent success defending Morgans Hotel Group against an activist.
According to the activist hedge fund, Darden Restaurants, Inc. (NYSE:DRI) ignored the rights of shareholders, and its decision to sell Red Lobster was destructive.
Starboard previously warned Darden
Last February, Starboard Value urged the board of directors of the restaurant operator to step back, listen to the recommendations of shareholders and do the right thing. The activist hedge fund requested Darden Restaurants, Inc. (NYSE:DRI) to schedule a special meeting intended to seek a non-binding vote from shareholders before entering any deal involving Red Lobster.
Starboard Value also warned that it is “prepared to take all steps necessary” to hold the board of directors accountable if it continues to ignore the input of major shareholders and complete its “ill-conceived and potentially destructive plan” to separate Red Lobster.
Red Lobster sale catalyst for takeover
One of the people familiar with Starboard Value’s plan told the Wall Street Journal that the sale of Red Lobster was a catalyst for the activist hedge to take over the entire board of Darden Restaurants, Inc. (NYSE:DRI).
“The Board has violated a clear shareholder directive and disenfranchised shareholders. The announcement of the Red Lobster sale demonstrates that Darden’s current board does not regard upholding shareholder interests as a priority,” according to the activist hedge fund in a letter to the board of the restaurant operator.
Starboard Value said it will nominate 12 candidates to the board of Darden Restaurants, Inc. (NYSE:DRI) during its annual meeting. The schedule is not yet announced by the company. The activist hedge fund said a “wholesale board change is required to reverse the years of poor performance, poor governance and shareholder value destruction.”
Darden’s response on board nominations
In response, Darden Restaurants, Inc. (NYSE:DRI) said its management and board of directors are focused on creating value for all shareholders. The company emphasized, “Starboard’s assertions continue to be based on incorrect and unrealistic analysis, which results in misleading conclusions regarding the value associated with the sale of the Red Lobster business.”
In addition, the restaurant operator pointed out, “By attempting to replace all 12 members of the board with its own preferred nominees, Starboard is seeking effective control of the company – representation which is disproportionate to Starboard’s recently acquired approximate 6.2% stake in Darden and which does not offer Darden shareholders a control premium for such change in control.”
UPDATE 3:50PM EST: Okapi is working for Starboard Value. A prior version of this article incorrectly stated that Okapi was working on Behalf of Darden.