Jeffrey C. Smith, the CEO and managing member of New York-based hedge fund Starboard Value L.P., earned the Fortune magazine label in December as “the most feared man in corporate America.”

Smith led the successful months-long activist investor fight against Orlando, Fla.-based casual-dining behemoth Darden Restaurants Inc., parent to the
Olive Garden, LongHorn Steakhouse and other brands, as well as former parent to Red Lobster.

Darden shareholders approved all 12 of Starboard’s board of director nominees over Darden’s slate, and Smith became the first activist to assume the chairmanship of a Fortune 500 company — something that even more notorious activists such as Bill Ackman and Carl Icahn haven’t been able to pull off.

CNBC has called this the “Golden Age of Activism.” The money in activist hedge fund coffers has grown from $36 billion in 2009 to $112 billion in 2014, according to Hedge Fund Research, and the effect on the restaurant industry has seeped beyond Darden. Activist investor Sandell Asset Management gained four seats on the board of Bob Evans Farms Inc., and investors are following Ackman’s reported interest in McDonald’s Corp.

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Other Highlights

• Starboard's Jeff Smith upends activist investor game
Darden exploring options for real estate

Smith accomplished his Darden victory with Starboard, a $3 billion hedge fund, owning only about 8.8 percent of the company’s stock, but observers credited his fund’s well-managed proxy contest.

Smith’s Darden victory comes after a successful career on Wall Street. He graduated in 1994 from the Wharton School of Business at the University of Pennsylvania and took a position with French bank Société Générale. He later moved to his father’s company, Fresh Juice Co., as vice president of strategic development and a board member. In 1998, he joined Ramius LLC, a subsidiary of Cowen Group Inc. Smith and two co-founders, Mark Mitchell and Peter Feld, created Starboard Value in March 2011.

Starboard’s interest in Darden was piqued after Barington Capital Group in June 2013 began buying shares of the casual-dining company, and in a September 2013 public letter, urged Darden to create a real estate investment trust and divide its brands into two groups, one with the slower-growing Olive Garden and Red Lobster, and the other with its younger brands, such as Bahama Breeze, Capital Grille, Eddie V’s, Seasons 52 and Yard House.

But Darden said in December 2013 that it intended to sell or spin off Red Lobster. Even though many investors opposed the move, Darden’s board on May 16 approved a $2.1 billion sale of Red Lobster to Golden Gate Capital, which prompted securities analyst Mark Kalinowski at Janney Capital Markets to headline his report on the deal as “Who Knew Lobsters Had Middle Fingers?”

That set the stage for Starboard to draw other shareholders to its cause and led to the October ouster of the board.

Since then, Darden has announced about $20 million in cost savings through the elimination of positions and cutting private-jet operations. Darden’s stock has risen more than 16 percent since the Oct. 10 board election.

Interim CEO Gene Lee has said Darden’s board will take its time evaluating other suggested changes.

Restaurant analyst Christopher O’Cull with Keybanc Capital Markets said in an investor note in December that “the company is an awkward position given the board is still drinking from a fire hose and a CEO search is under way, but we think it will be critical for the company in the next six months to describe the vision for Darden under new leadership.”

Contact Ron Ruggless at [email protected].
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