What is in this article?:
- Report: Darden hires Goldman Sachs to review proposal to split
- Monetizing real estate holdings
Activist investor Barington Capital recommended that the operator divide its brands
Darden Restaurants Inc. has reportedly hired investment firm Goldman Sachs to review recommendations from activist investor Barington Capital Group L.P. that call for breaking the company into two restaurant companies and monetizing its real estate holdings.
The New York-based hedge fund, which represents about 2 percent of Darden shares, released Thursday contents of its Sept. 23 letter to Darden’s board, calling for dividing Orlando, Fla.-based Darden into one company with its mature Red Lobster and Olive Garden brands, and the other with its smaller “higher-growth” Longhorn Steakhouse and specialty brands like Seasons 52, Eddie V’s, Yard House and The Capital Grille.
Barington also urged sale-leasebacks of Darden’s real estate or the creation of a separate management company.
“The status quo is clearly not acceptable, as highlighted by Darden’s disappointing first-quarter results and negative investor reaction,” wrote James A. Mitarotonda, chief executive at Barington, in the letter to the board.
Mitarotonda said the company break-up and real estate measures could “generate in excess of $3 billion to $3.9 billion in enterprise value in the next 18 to 24 months.” He added that the fund had met with Darden executives and also suggested further cuts in operating expenses beyond the 85 layoffs and $50 million a year in administrative costs the company announced in September.
Darden’s director of communications, Rich Jeffers, reiterated Friday that last week’s statement would be the company’s only comment on the matter. The company said then that it welcomed Barington’s input about how the company’s board of directors could enhance shareholder value.
“The board will take the time necessary to thoroughly evaluate Barington’s suggestions, just as the company does for any of its shareholders,” Jeffers said.
Mitarotonda said other restaurant companies have succeed by focusing on core brands, citing McDonald’s Corp.’s divesture of Chipotle, Boston Market and Donato’s Pizza; Brinker International’s sale of Corner Bakery, Macaroni Grill and On the Border; and the division of Lone Star Steakhouse into Del Frisco’s Restaurant Group.
Darden, which is the nation’s largest casual-dining company, with more than 2,150 restaurants, reported in September a 36.6-percent decline in profit for the Aug. 25-ended first quarter. Net income fell to $70.3 million, or 53 cents per share, from $110.8 million, or 85 cents per share, in the year-earlier period. Revenue rose 6.1 percent to $2.16 billion, compared with $2.03 billion in the prior-year period.
Same-store sales at Darden’s 832-unit Olive Garden and 704-unit Red Lobster chains slipped in the first quarter. Olive Garden’s same-store sales fell 4 percent, and Red Lobster’s comparable sales at U.S. units fell 5.2 percent.
Among Darden’s other brands, same-store sales rose 3.2 percent at 438-unit LongHorn, 2.7 percent at 36-unit Bahama Breeze, 3.2 percent at 50-unit Capital Grille and 2.1 percent at Eddie V’s. Same-stores sales showed declines of 4.4 percent at 31-unit Seasons 52 and 1.5 percent at 46-unit Yard House.