The company was apparently dragging its feet on scheduling the special meeting though and the reason became clear last week with the announcement that it would sell Red Lobster to private equity firm Golden Gate Capital for $2.1b. The after-tax haul is expected to be ~$1.6b with $1b going towards paying down debt and the rest to be used on share repurchases. According to management, additional benefits of the deal include the ability to maintain the current dividend and increased management focus on the other parts of the business. The company is very focused on bringing about a ‘renaissance’ in its larger and sluggish Olive Garden franchise. The deal is expected to close during Q1 of FY’15 which starts next month. Interestingly, in conjunction with the deal, American Realty Capital (ACRP) entered into a $1.5b sale-leaseback transaction for ~500 of the Red Lobster locations.
The deal was obviously an affront to the activist investors and it’s safe to say that Starboard was not pleased with this turn of events. According to Starboard CEO Jeffrey Smith, the deal ‘woefully undervalues Red Lobster and its real estate assets…is the wrong transaction, at the wrong time, for the wrong reasons.’ He also said that ‘this board’s value destructive and self-serving actions fly in the face of corporate democracy.’ Perhaps, but as the WSJ’s Dealpolitik blog points out, there is probably very little that the fund can do about it anymore. Not much to do once an agreement is signed and the deal should be closed prior to the next annual meeting where the funds will seek to nominate new directors. I think Janney’s Mark Kalinowski put it best with his comment that ‘who knew lobsters had middle fingers.’
DRI dropped on the news, although some believe the company did ok for itself in the deal. At least bondholders were happy as spreads on DRI bonds tightened. I don’t expect the funds to give up on the company though so I expect Darden will continue serving up the drama.
Disclosure: Author holds no position in any stock mentioned.