October 10, 2014 4:08 pm

Starboard sweeps away entire Darden board

By Stephen Foley in New York

Hedge fund Starboard Value scored a sweeping final victory in its ten-month fight to shake up Darden Restaurants, owner of Olive Garden, in another example of institutional investors’ willingness to back activists at underperforming companies.

Starboard’s nominees, including the hedge fund’s founder Jeff Smith, won all 12 seats on Darden’s board at the company’s annual meeting on Friday.

While activists often seek board seats to push their plans, it is rare for them to put up a full slate of candidates to replace existing directors, and rarer still for them to find support among other shareholders.

Starboard had argued that Darden mismanaged Olive Garden and failed to pursue shareholder-friendly plans such as splitting the business or restructuring its property portfolio.

Darden’s sale of its Red Lobster chain earlier this year, just ahead of a shareholder vote that might have stopped it, angered some shareholders. The company also said that its long-time chief executive Clarence Otis would step down, but Starboard continued to press its case for more sweeping change in the boardroom.

“Darden has all the right ingredients to regain the strength and prominence it once enjoyed,” Mr Smith said, in a statement issued jointly with the company, adding that the new board would move quickly to find a “transformational leader to be Darden’s CEO”.

Starboard was the second activist investor to alight on Darden, whose shares had lagged behind the market as Olive Garden and Red Lobster succumbed to competition from fast-food chains such as Chipotle. Earlier last year, Barington Capital demanded the company break itself up.

The two activists bombarded Darden shareholders with letters attacking existing management and setting out menus of proposals for improving the business, from revamping restaurant managers’ bonuses to changing the way Olive Garden serves breadsticks.

In a last gasp attempt to prevent Starboard’s victory, Darden had conceded a minority of seats to its nominees but argued that handing full control of the board to a hedge fund would hurt shareholders’ interests.

Darden’s shares rose slightly to $49.34. The shares peaked at $57.20 two years ago.

The margin of victory for Starboard’s candidates was not immediately available.