Darden Restaurants Inc. (DRI), owner of the Olive Garden and Red Lobster dining chains, rose the most in more than two years as Barington Capital Group LP took a stake in the company to press for changes.
The shares rose 7.1 percent to $49.57 at the close in New York for the biggest gain since August 2011. Darden, based in Orlando, Florida, has advanced 10 percent this year, compared with a 16 percent increase for the Standard & Poor’s 500 Index.
Barington, a New York-based hedge fund, represents a group of investors that owns more than 2 percent of Darden’s outstanding common stock, a Barington spokesman, who asked not to be named because it is the company’s policy, said in an interview.
“Barington has met and had follow-up discussions with members of Darden’s senior management team,” the spokesman said in an e-mailed statement. “Darden has the potential to deliver significantly higher returns to shareholders and anticipate continuing our ongoing dialog regarding measures to improve the company’s financial and share price performance.”
Darden has spoken with Barington and will evaluate its suggestions, just as it does for all shareholders, Rich Jeffers, a spokesman for the restaurant chain, said today in an e-mailed statement.
The Wall Street Journal reported on the stake earlier today and said Barington plans to press Darden to split into two companies: one with its high-growth chains such as Capital Grille and the other with established brands Red Lobster and Olive Garden. The investor also is urging the company to cut costs faster, the newspaper reported.
Darden Chief Executive Officer Clarence Otis has been introducing more affordable fare at the company’s restaurants to attract diners who are eating out less as confidence falls. Consumer sentiment declined to a five-month low in September as Americans’ views on the economy dimmed.
Last month, Darden reported fiscal first-quarter profit that trailed analysts’ estimates as sales fell at Olive Garden and Red Lobster, its largest brands. Same-store sales dropped 4 percent at Olive Garden and 5.2 percent at Red Lobster.
“If they want to unlock value from some of their faster-growing brands, there could be an argument” for breaking up the company, Stephen Anderson, an analyst at Miller Tabak & Co. in New York, said in an interview. “I think there will be a turnaround in the business even if there’s no external catalyst like a breakup.”
Standard & Poor’s on Oct. 2 lowered Darden’s corporate credit rating to BBB-, the lowest investment-grade rating, from BBB, citing “relatively soft” sales and earnings trends.
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