Darden announces sale of Red Lobster

Orlando SentinelMay 17, 2014 

Darden Restaurants Red Lobster

This Sept. 6, 2012, file photo shows a Red Lobster restaurant in Hialeah. Darden Restaurants on Friday said it entered an agreement to sell its Red Lobster chain to investment firm Golden Gate Capital in a $2.1 billion cash deal. ASSOCIATED PRESS

ALAN DIAZ — AP

ORLANDO -- Darden Restaurants announced Friday it has reached an agreement to sell Red Lobster to private equity firm Golden Gate Capital.

Red Lobster will continue to be based in Orlando, and there are no immediate plans for restaurant closures. Darden would not say how many corporate employees will work for the company.

The sale should close this summer.

Analysts had mixed views of the sale, and Darden's stock was down 3 percent Friday morning.

It's a positive that Darden "rids itself of its most troubled business," Janney Capital Markets analyst Mark Kalinowski wrote in a note to investors. The sale price seems reasonable too.

"However, after a sale of Red Lobster, 'New Darden' would still consist of seven (read: too many) restaurant brands," Kalinowski wrote.

After the $2.1 billion sale, Darden expects to receive net cash proceeds of about $1.6 billion. Golden Gate plans to do a sale-leaseback of restaurant property.

Hedge fund Starboard Val

ue has been trying to halt the sale and recently persuaded holders of 57 percent of Darden stock to vote in favor of a special meeting to weigh in on a sale or spinoff of the brand. Starboard officials could not immediately be reached for comment.

The announcement "is a thumb in the eye of activist investors," Kalinowski wrote. He titled his research note, "Who knew lobsters had middle fingers?"

In a slide presentation, Darden said the process "would be extremely difficult to restart if it were significantly delayed," and that would risk further decline in Red Lobster's performance and a less attractive price.

Darden said in a press release it still plans a special meeting on the matter.

Golden Gate used to own Romano's Macaroni Grill, which it sold last year to Ignite Restaurant Group. Its investments have also included California Pizza Kitchen, Payless ShoeSource, Eddie Bauer, Express, Zales, J.Jill and Pacific Sunwear.

Some of its recent acquisitions have been Springs Window Fashions, ArrMaz Custom Chemicals, and Ex Libris Global Holdings.

"Most private equity firms are the same -- they try to buy a beat up brand like this and then what they'll do is typically go in and try to cut significant costs out of the system," said Steve West, an analyst who covers Darden for Investment Technology Group.

Then they often either sell the brand or take it public in a few years, he said.

Darden said in a press release it will use $1 billion to retire outstanding debt and the rest for share repurchases.

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