What is in this article?:
- Analysts, investors weigh in on Red Lobster sale
- What analysts are saying
Darden investors criticized the deal, while analysts responded favorably to the proposed sale
Darden Restaurants Inc.’s plan to sell its 706-unit Red Lobster division to San Francisco-based private equity firm Golden Gate Capital for $2.1 billion drew swift criticism from activist investors.
Orlando, Fla.-based Darden made the announcement early Friday morning, and by midday, activist investor Starboard Value L.P., which, along with Barington Capital L.P., had pressed for steps beyond the Red Lobster spinoff, said it had serious questions about the deal. Restaurant analysts were generally favorable toward the proposed sale.
Starboard, which owns about 5.5 percent of Darden’s shares, had petitioned for a special meeting for shareholders to consider the Red Lobster spinoff.
Jeffrey Smith, Starboard’s chief executive and chief investment officer, said in a statement, “We seriously question the decision to rush such a transaction rather than wait to hear the views and perspectives of shareholders on this critically important topic.
“Our suspicions all along have now unfortunately been confirmed — this sale is the wrong transaction, at the wrong time, for the wrong reasons,” Smith said. “This board’s value-destructive and self-serving actions fly in the face of corporate democracy.”
In its Red Lobster sale announcement, Darden said, "the closing of this transaction is not contingent on the results of a special meeting.”
Smith said the proposed $2.1 billion Red Lobster sale “woefully undervalues” the brand and its real estate.
“It is truly unbelievable that the current board has the audacity to negotiate a transaction that does not require shareholder approval when a significant majority of Darden’s shareholders have formally demanded a special meeting on this very topic,” Smith said.
“If the company was intending to ignore the will of the shareholders and rush to do a transaction, you would have at least thought that it would have been a highly opportunistic transaction at a substantial premium to the underlying value of Red Lobster,” Smith said. “However, that is clearly not the case and it appears that Darden has instead sold Red Lobster in a rushed transaction at a severe discount.”
The proposed Golden Gate transaction was approved by Darden’s board of directors and is expected to close in the company’s first fiscal quarter of 2015, which runs from June to August.
Analysts had varied reactions to the Red Lobster announcement. Mark Kalinowski, analyst with Janney Capital Markets, referenced the activist investor snub and headlined his early note: “DRI: Who Knew Lobsters Had Middle Fingers?”
“One positive is that Darden rids itself of its most troubled business,” Kalinowski wrote, “and the sale price is about what the Street was expecting. However, after a sale of Red Lobster, ‘New Darden’ would still consist of seven (read: too many) restaurant brands.”
Kalinowski noted that Darden is required by law to call a special investor meeting and plans to do so. “…Clearly today's announcement is a thumb in the eye of activist investors,” he added.