Note: The copy of the article below is a revised
version the original that was
distributed to Forum participants shortly after its publication. The
revision includes a different calculation of stock price change in the
concluding sentence.
Analysts broadly
agree that Darden should slow the opening of new Olive Garden
restaurants.
The activist hedge fund
pushing for change at
Darden Restaurants signaled on Thursday that it was ramping up its
pressure.
Barington Capital, which it
owns over 2 percent of the restaurant group’s shares,
announced that it has hired the investment bank Houlihan Lokey to
conduct “an independent review” of its recommended changes to the company’s
strategy.
In perhaps a more
intriguing move, Barington said that it had also hired MacKenzie Partners, a
proxy soliciting firm often used in board fights.
The move comes a month
after the hedge fund publicly disclosed a letter that it had sent to
Darden’s board urging the company to break itself up into as many as three
separate businesses. The plan includes separating the mature Olive Garden
and Red Lobster chains from faster-growing brands like LongHorn Steakhouse
and the Capital Grille as part of an effort to cut over $100 million in
costs and simplify the restaurant group’s structure.
Barington says that its
initiatives could bolster the company’s stock price by up to 50 percent.
“Although Darden’s
performance has been disappointing over the past few years, we are convinced
that the recommendations we shared with the company’s management team in
June can meaningfully enhance the long-term profitability of Darden,” James
A. Mitarotonda, Barington’s chairman and chief executive, said in a
statement on Thursday.
For now, relations between
Darden and Barington remain cordial, according to a person briefed on the
matter. The hedge fund — which prides itself on quietly and constructively
working with its targets — is hoping for a peaceful resolution. Mr.
Mitarotonda added in his statement that his firm is “committed to doing
whatever we can to assist the company in improving long-term shareholder
value for the benefit of all Darden shareholders.”
But investors and analysts
are likely to see the hiring of Houlihan and MacKenzie as a way to add
pressure on the company’s board to widen the scope of its own turnaround
plan.
It’s unclear whether
Barington has garnered significant support from the investment community.
While analysts broadly agree that Darden should tighten operations at its
core Red Lobster and Olive Garden restaurants, such as by slowing the
opening of new locations and cutting costs, some have expressed skepticism
that separating the brands would create value.
Still, shares in Darden
have risen over 16 percent since word of Barington’s efforts emerged. They
closed on Wednesday at $52.96.
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