Darden Restaurants Inc. has agreed to sell Red Lobster to San Francisco-based private equity firm Golden Gate Capital for $2.1 billion in cash, the casual-dining company said Friday.

After taxes and transaction costs, Darden expects to receive net proceeds of $1.6 billion, of which about $1 billion would be used to retire outstanding debt. The remaining $500 million to $600 million will be deployed for a share repurchase program of up to $700 million in fiscal 2015, the Orlando, Fla.-based company said.

In a statement, Darden said the all-cash transaction also would allow the company to maintain its annual dividend of $2.20 per share and other capital-return initiatives. The purchase price represents approximately nine times Red Lobster’s earnings before interest, taxes, depreciation and amortization for the 12 months ended April 27, 2014.


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“By enabling us to bolster the company’s financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the company’s dividend and regain momentum at Olive Garden,” Darden chief executive Clarence Otis said in a statement Friday. “At the same time, it provides Red Lobster and its dedicated employees and leadership team with a partner who has a strong track record in the industry and is as equally dedicated to Red Lobster’s success.”

Josh Olshansky, Golden Gate’s managing director, said in a statement that Red Lobster was “an exceptionally strong brand with an unparalleled market position in seafood casual dining.”

“Red Lobster is exactly the type of company in which we seek to invest given its great brand profile and strong management team,” Olshansky said. “We see significant opportunities for future growth by partnering with Kim Lopdrup and the management team to support the long-term success of Red Lobster.”

Golden Gate has been involved in several of the industry’s largest transactions of the past few years, including the sale last month of the On The Border chain to Argonne Capital Group. Golden Gate also acquired the California Pizza Kitchen chain in 2011 for $470 million.

In the NRN 2013 Top 100 company census, which ranks restaurant chain parent companies or owners by U.S. foodservice revenue, Golden Gate ranked No. 27, with $1.27 billion in revenue from its owned brands. That figure included pre-sale On The Border revenue. Golden Gate sold the Romano’s Macaroni Grill brand to Houston-based Ignite Restaurant Group Inc. for $55 million in April 2013.

Darden first announced in December that it would seek to spin off or sell its long-struggling Red Lobster chain, which had failed for several quarters to reverse declining sales and traffic similarly to Darden’s other flagship casual-dining brand, Olive Garden.

For Darden’s most recent third quarter, ended Feb. 23, same-store sales at 706-unit Red Lobster fell 8.8 percent.

Despite protests from two activist shareholders, Barington Capital Group L.P. and Starboard Value L.P., which for months have argued that Darden was not doing enough to create shareholder value and that a spinoff of Red Lobster would be insufficient, Darden officials contended the plan would move forward.

In preparation for the sale of Red Lobster, Darden closed its six co-located Red Lobster-Olive Garden restaurants earlier this month.

In addition to Red Lobster and Olive Garden, Darden also owns and operates LongHorn Steakhouse and brands within its Specialty Restaurant Group, including Yard House, Bahama Breeze, Seasons 52, The Capital Grille and Eddie V’s.

Deutsche Bank Securities Inc. and Jefferies LLC are serving as financial advisors to Golden Gate Capital in connection with the transaction. Deutsche Bank Securities Inc., GE Capital, and Jefferies Finance LLC are providing debt commitments for the acquisition.
 
Goldman, Sachs & Co. is serving as Darden's exclusive financial advisor on the sale.

This story has been revised to reflect the following update:

Update: May 16, 2014
  This story has been updated to include the listing of financial advisors and debt financing details.

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN