Darden Restaurants Inc.
) is facing trouble regarding the spin-off of one of its
restaurant concepts, Red Lobster. A major shareholder of Darden,
Starboard Value LP, believes the spin-off is not in the best
interest of the shareholders.
In Oct 2013, hedge fund, Barington Capital Group LP, acquired
2.8% stake in Darden. Soon after the acquisition, Barington
Capital proposed a break-up of the company amid growing concerns
about Darden's performance. In Dec 2013, under pressure of
Barington Capital Darden announced a comprehensive plan to
separate (through spin-off or sale) its core brand, Red Lobster,
in order to enhance shareholder value and leverage the benefits
of the company's position.
Starboard Value LP filed a Preliminary Solicitation Statement
with the Securities and Exchange Commission to arrange a special
meeting for Darden shareholders to express their views on the Red
Lobster divesture. However, this is being viewed as an effort by
Starboard Value to suspend the spin-off.
However, Starboard Value, which own 5.5% stake in Darden
believes the latter should seek shareholders' opinions regarding
The investment consultant in a public letter to Darden
Shareholders stated that it is worried that the company will
complete the spin-off before the 2014 Annual Meeting without
taking suggestion from shareholders. Starboard Value believes the
separation will not help Darden to recover its business and
improve cost structure. The spin-off will, however, significantly
hurt Darden's shareholder value.
However, Starboard Value will need to get the support from
nearly 50% shareholders to conduct the Special Meeting.
This is not the first time that the Zacks Rank #4 (Sell)
company has witnessed difficulty regarding the Red Lobster
separation. Last month, Darden was criticized by Barrington
Capital for not processing the spin off effectively.
Sales at Red Lobster remained under pressure for most of
fiscal 2013 and in the first half of fiscal 2014. The weak top
line performance compelled the company to take the decision to
separate the segment. Another brand, Olive Garden, also
underperformed for the major part of fiscal 2013. However, it was
up 2.4% year over year during fiscal first-quarter 2014 driven by
a set of initiatives to boost the brand.
Other Stocks to Consider
Some better-ranked stocks in the restaurant industry include
Fiesta Restaurant Group, Inc.
Brinker International, Inc.
Buffalo Wild Wings Inc.
). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy),
Brinker and Buffalo Wild Wings have a Zacks Rank #2 (Buy).
BUFFALO WLD WNG (BWLD): Free Stock Analysis
DARDEN RESTRNT (DRI): Free Stock Analysis
BRINKER INTL (EAT): Free Stock Analysis
FIESTA RESTRNT (FRGI): Free Stock Analysis
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