Amidst Activist Opposition, Darden Persists With Plan To Spin Off Red Lobster

We’ve been quite remiss in not discussing Darden’s(DRI) plan to spinoff Red Lobster and the ongoing activist fight over the company’s direction. Both Barrington Capital with 2.8% of the company and Starboard Value, with 5.5%, have been sparring with the firm. Barrington had proposed that the the firm separate its low-growth brands, Red Lobster and Olive Garden, from its higher growth brands, which include LongHorn Steakhouse and Capital Grille. Barrington also urged to company to separate its real estate into a publicly traded REIT, as well as to separate the offices of Chairman and CEO. Starboard had demanded that the company put the separation of Red Lobster up to a shareholder vote and has moved to force such a vote. It should be noted that most spinoffs are not subject to shareholder vote. Starboard has hired former Darden executive Brad Blum as an adviser, prompting speculation that they hope to install him as CEO.

The company’s Olive Garden brand has been struggling along with Red Lobster, and the company released a presentation which details its turnaround plan as well as its plan to spin off Red Lobster, which it continues to pursue. The company also said it had explored and rejected Barrington’s proposal to spin off the company’s real estate.

Judging by the presentation and the company’s past statements, the company plans to load Red Lobster with debt. Given the poor performance of the brand, there is substantial doubt that a debt-laden Red Lobster will prove to be a viable independent business.

Here are the relevant slides from the presentation: