Darden Restaurants, which
has been under pressure from an activist hedge fund, announced on Thursday
that it would jettison its Red Lobster chain, one of several steps it said
it would take to bolster its stock value.
Darden said in a statement
that it planned to hold a tax-free spinoff of Red Lobster to its
shareholders, but added that it might also consider a sale of the Red
Lobster business.
“As consumer demand
dynamics have changed, Red Lobster’s priorities and operating support
requirements have come to differ meaningfully from those of Darden’s other
brands,” Darden said. “As a separate company, Red Lobster will have greater
freedom to pursue marketing and operating strategies that are more tailored
to the needs of those consumers who fit its core guest profile.”
Red Lobster has 705
restaurants in the United States and Canada and had annual sales of about
$2.6 billion in the company’s 2013 fiscal year.
Darden also said it would
take several other steps, including halting expansion of its Olive Garden
restaurants and slowing down new locations for the LongHorn Steakhouse
chain. “The reduced unit growth will lower capital spending by at least $100
million annually,” the company said in the statement. It said it would also
avoid making any new brand acquisitions for now.
In September, the activist
hedge fund Barington Capital Group called for Darden to break itself up into
as many as three separate businesses. That proposal included separating the
Olive Garden and Red Lobster chains from faster-growing brands like LongHorn
Steakhouse and the Capital Grille. And it has encouraged Darden to explore
either selling its real estate and leasing it back or to spin off its
voluminous holdings into a publicly traded real estate investment trust.
Darden is one of the
biggest targets in the industry, with a market value of $6.9 billion. But
the company has struggled financially as consumers tightened their grip on
their wallets, and its stock price has been under pressure in the last 12
months.
Goldman Sachs is serving as
Darden’s financial adviser and Latham & Watkins is its legal counsel.
Wachtell, Lipton, Rosen & Katz is serving as legal adviser to Darden’s
board.
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