Darden Restaurants, Inc. (NYSE:DRI) is cautioning investors against an opinion issued by the influential shareholder advisory firm Institutional Shareholder Services. The firm recommended that shareholders approve Starboard Value’s entire slate of board nominees to replace all of Darden’s current board members.
Darden: “Shareholders should be alarmed”
In a press release this morning, Darden Restaurants said shareholders “should be alarmed that ISS has recommended an entire new slate of directors. The company said that ISS had almost no regard to what the company sees as “positive” improvements being underway or the risks associated with the completely new board recommended by Starboard.
Darden also said ISS did not take into account the “meaningful enhancements” it has made to its leadership structure, the search for a new CEO and its new slate of independent director nominees. If Darden’s slate of directors is approved, it would swap out eight of the 12 directors that currently sit on the board.
Darden speaks out about Red Lobster
The restaurant chain operator also said that ISS is putting “large reliance on mistaken perception” about the Red Lobster deal and that those perceptions “are inconsistent with the facts.” Darden said it began reviewing Red Lobster early last year.
Management wanted to “maximize value and minimize risks” associated with continuing to own Red Lobster. Darden said they evaluated the continuing deterioration of the Red Lobster brand and uncertainty of its future. In addition, the restaurant chain operator said it was consistent with management’s goal of focusing on the Olive Garden brand.
Evaluating the Red Lobster deal
Darden further said that the deal gave it $2.1 billion in cash immediately, which enabled it to reduce debt and support its capital return initiatives. The company said that ISS’ “flawed analysis” relies on $107 million in “incorrect costs that were never incurred.” In addition, Darden said ISS undervalued how much the deal consideration was attributable to Red Lobster’s business and its related assets by almost $500 million.
The restaurant chain operator claims to have spoken with many shareholders that don’t support handing over total board control to Starboard. Darden also said that these shareholders understand the risks of the total turnover and that ISS is ignoring these risks.
What Darden wants shareholders to consider
The company also listed a number of things it wants shareholders to consider going into the next meeting. First, management believes they’re making progress in their operating priorities, including making improvements to the Olive Garden brand.
Second, they think the four independent directors they want to leave on the board offer “critical knowledge and insights about the Company, the industry and what has made Darden’s brands successful over time and through various economic cycles.” They don’t think any of Starboard’s nominees offer these types of insights.
And third, they say that new perspectives are important and point out that their proposed slate of directors includes four nominees that are not affiliated with Starboard or Darden and other four seats to be filled by Starboard’s nominees. They see “significant experience gaps” in the slate of directors proposed by Starboard.