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 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.â€
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.
The company 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 encourages 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.
