Darden To Spin-Off Red Lobster Under Hedge Fund Pressure

Dec 19 2013 | 11:06am ET

Under assault by an activist hedge fund, Darden Restaurants said it would sell or spin-off one of its underperforming chains and would stop expanding another.

The company said it would hold a tax-free spin-off of Red Lobster and would stop adding new branches of its Olive Garden restaurants. It also said that it would slow the growth of its LongHorn Steakhouse chain and would refrain from making new acquisitions.

Hedge fund Barington Capital Group in September demanded that Darden split Red Lobster and Olive Garden into a separate company, to keep them from weighing on the returns from its six smaller, faster-growing franchises. This week, the hedge fund made its most detailed proposal, which also included a real-estate spin-off and a call for savings of between $100 million and $150 million.

Darden said that its "reduced unit growth will lower capital spending by at least $100 million annually."

"As consumer demand dynamics have changed, Red Lobster's priorities and operating support requirements have come to differ meaningfully from those of Darden's other brands," the company said. "As a separate company, Red Lobster will have greater freedom to pursue marketing and operating strategies that are more tailored to the needs of those consumers who fit its core guest profile."

Darden said that while it planned to spin Red Lobster off, it would consider a sale of the chain, which has 705 branches in the U.S. and Canada.

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