Activist Investor: Darden Restaurants Should Split Into Two Companies

An activist investor is urging Orlando, Fla.-based Darden Restaurants (NYSE:DRI) to spin off its Olive Garden and Red Lobster chains after their weak performance in Darden's fiscal first quarter.

Darden, which also owns LongHorn Steakhouse, Bahama Breeze, The Capital Grille, and several other restaurant chains, realized a 37.6 percent drop in its net earnings per share in the quarter that ended Aug. 25. Same-restaurant sales at Red Lobster dropped 5.2 percent in the quarter, and 4 percent at Olive Garden.

The activist investor, Barington Hedge Fund, which reportedly owns a 2.8 percent stake in Darden, believes that Olive Garden and Red Lobster would operate better as a separate company. The second Darden operation would include Darden's better-performing chains, including LongHorn Steakhouse and the five chains in its Specialty Restaurant Group: Bahama Breeze, Eddie V's Steakhouse, The Capital Grille, Seasons 52 and Yard House.

Darden executives are not saying whether they support the idea or not. "The board [of directors] will take the time necessary to thoroughly evaluate Barington's suggestions, just as the company does for any of its shareholders," Rich Jeffries, Darden's director of communications, wrote in an email to Nation's Restaurant News.

Activist shareholders have made demands of several other public restaurant companies this year. For example, Sandell Asset Management, which has a more than 5 percent stake in Bob Evans Farms (Nasdaq:BOBE), said the restaurant company should split its restaurant and packaged-foods businesses and perform a sale-leaseback transaction of its owned real estate. Bob Evans Farms' directors disagreed with the request in August.

For more:
-See this Nation's Restaurant News article
-See this Nation's Restaurant News article
-See this Darden Restaurants press release

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