Darden Split Plan May Hinder Real Estate Deal, Activist Says

Darden Restaurants Inc. (DRI)’s plan to split off Red Lobster could prevent the company from unlocking the $4 billion of value trapped in its real estate holdings, according to Barington Capital Group LP.

“Not only does Darden’s plan fail to pursue these opportunities, it could hinder the company’s ability to monetize its real estate in the future,” Barington said today. Last month, the activist investor, which says it represents shareholders who own more than 2 percent of Darden, recommended the $6.8 billion company create a publicly traded real estate investment trust.

Darden, which announced the potential separation of Red Lobster on Dec. 19, hasn’t yet decided whether it will sell the chain or spin it off as a publicly traded company. It expects to close any deal by the early part of the next fiscal year, which starts in May. Barington said the plan is “incomplete and inadequate” and that the restaurant operator should also separate Olive Garden from its faster-growing chains, which include The Capital Grille and Eddie V’s.

“Darden’s board of directors and management team are focused on creating value for all Darden shareholders,” Rich Jeffers, a spokesman for Orlando, Florida-based Darden, said in an e-mailed statement.“We are confident that our plan, together with actions we are taking to enhance guest experiences and reinvigorate demand, will lead to improved performance in our restaurants and substantially increase value for all Darden shareholders.”

Lagging Performance

As of last week, Darden’s shares had gained about 16 percent in the past year, compared with a 36 percent gain in the Bloomberg Industries index of North American casual restaurants. The stock fell more than 1 percent to $51.49 as of 12:29 p.m. in New York today.

Starboard Value LP disclosed a 5.6 percent stake last month and also said Darden’s plan falls short of what’s needed to boost the stock price. The New York-based hedge fund said at the time that it may seek talks with management and other shareholders.

Barington will host an online presentation Jan. 30 to discuss its recommendations for Darden and its concerns with the company’s proposed plan for Red Lobster.

To contact the reporter on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net

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