Starboard Value LP, the activist investor headed by Jeffrey Smith sent a new letter to leadership of Darden Restaurants, Inc. (NYSE:DRI) reiterating its position that the current plan of 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 investor warned that it is” prepared to take all steps necessary” to hold the board of directors accountable if it will continue to ignore the input of its major shareholders and complete its “ill-conceived and potentially value destructive” plan to separate Red Lobster prior to the 2014 annual shareholders meeting.
Starboard Value said it will seek the support of its fellow shareholders to remove majority of the members of the board of Darden Restaurants, Inc. (NYSE:DRI) during the 2014 annual meeting.
In the letter, Smith pointed out that a number of shareholders of Darden Restaurants, Inc. (NYSE:DRI) were also concerned about the current plan of the company to spinoff Red Lobster. According to him, they want the company to conduct a “more fulsome review of all available opportunities to create value for shareholders.”
The shareholders also believed that selling or separating Red Lobster without an objective and full evaluation of the real estate owned by Darden Restaurants, Inc. (NYSE:DRI) might result in substantial shareholder value destruction.
Starboard urges Darden board to step back
The activist investor 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.
Starboard Value suggested for Darden Restaurants, Inc. (NYSE:DRI) to execute a company-wide operational improvement plan including meaningful cost reductions and other changes to put the company in a position equal to its better-performing peers in the industry.
The activist hedge fund also to evaluate all options for its real-estate assets including a tax efficient sale or REIT spin-off of the owned properties; and review the most logical and efficient merger of restaurant concepts to be separated from Darden Restaurants, Inc. (NYSE:DRI).
Furthermore, Starboard Value suggested other value creation initiatives such as franchising certain concepts to take advantage of domestic and international growth opportunities, as well as re-franchising some of its stores in certain markets where Darden Restaurants, Inc. (NYSE:DRI) has operational deficiencies to improve its operating performance and return of capital.
Moreover, the activist hedge fund expressed its intention to discuss the composition of the board of Darden Restaurants, Inc. (NYSE:DRI) citing its “dismal historical performance.” Starboard Value emphasized that absolute changes in the board composition is necessary to return the company to profitability.