Starboard Says Darden’s Red Lobster Spinoff ‘Bad Idea’

Starboard Value LP Chief Executive Officer Jeff Smith said his activist fund continues to fight Darden Restaurants Inc.’s plan to separate its Red Lobster chain instead of pursuing real-estate divestments.

Darden’s plan to spin off Red Lobster is “just a bad idea” that would create an underperforming stock and deprive the parent company of almost half of its real estate, Smith said today at the Active-Passive Investor Summit in New York. He reiterated Starboard’s proposal that Darden instead slash operating costs and unlock value in its real estate via a sale or real-estate investment trust transaction.

“They actually have the worst of both worlds,” Smith said. “They have the conglomerate’s lack of focus and they have higher costs than the rest of the industry.”

Starboard is asking Darden shareholders to vote for a special meeting over the company’s plans.

Starboard disclosed a stake in Darden in December, joining Barington Capital Group LP in saying that the company’s proposal to separate Red Lobster is inadequate for investors. Starboard, which owns 5.5 percent of the casual-dining company, estimates that Darden’s real-estate holdings are worth about $4 billion.

Recent Targets

Starboard was founded in March 2011 through a spinoff from Cowen Group’s Ramius LLC. The firm continues the small-cap activist strategy developed by Smith and Mark Mitchell since 2002 and Peter Feld since 2005 -- buying stakes in companies they call undervalued and pushing executives and directors for changes such as unit spin-offs and asset sales.

Starboard recently targeted Aaron’s Inc., a furnishing and appliance supplier, and Emulex Corp., which sells chips that help computer servers and storage networks transfer data.

New York-based Starboard has previously pushed for changes at retailer Office Depot Inc., pork producer Smithfield Foods Inc. and Internet company AOL Inc., among others. The firm recently negotiated board seats at companies including LSB Industries Inc. and DSP Group Inc., and sought directorships at Triquint Semiconductor Inc. and Wausau Paper Corp.

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage corporate executives and directors by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.

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