Red Lobster sale by Darden Restaurants nets $2.1 billion

Darden Restaurants announced Friday that it will sell its Red Lobster chain for $2.1 billion in cash to Golden Gate Capital, a private equity firm based in San Francisco.

The company expects to receive net cash proceeds of about $1.6 billion, after tax and transactions costs, and $1 billion of that will go toward outstanding debt, according to a press release. Darden will use the rest of the money to buy back shares.

Darden chief executive Clarence Otis said in the release that executives have spent months speaking with shareholders about the company’s future. The sale to Golden Gate Capital provides Red Lobster a partner who will be as dedicated to the business as Red Lobster is, Mr. Otis said in a statement. He added that the company will focus more on strengthening the Olive Garden brand.

“By enabling us to bolster the Company's financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the Company's dividend and regain momentum at Olive Garden,” Mr. Otis said. 

Darden had announced late last year that it would sell Red Lobster. The deal to Golden Gate Capital will be closed in the first fiscal quarter of 2015, according to the release.

Josh Olshansky, managing director of Golden Gate Capital, said in the same press release that Red Lobster is a strong brand and the type of company his firm seeks to invest in.

“We see significant opportunities for future growth by partnering with [Red Lobster CEO-elect] Kim Lopdrup and the management team to support the long-term success of Red Lobster,” Mr. Olshanksy said.

Starboard Value LP, one of Darden’s largest shareholders, previously expressed concern with Darden selling Red Lobster. Starboard, which owns about 5.5 percent of Darden sent a letter to the company’s board of directors on Wednesday that selling Red Lobster right now would not be an appropriate move for the chain.

In a statement today, Starboard's chief executive officer Jeffrey Smith said the sale undervalues both Red Lobster and its real estate assets. Mr. Smith said it was shocking that Darden would negotiate a sale that did not require shareholders' approval, considering that many had asked for a special meeting to discuss the matter.

"We seriously question the decision to rush such a transaction rather than wait to hear the views and perspectives of shareholders on this critically important topic," he said. Our suspicions all along have now unfortunately been confirmed -- this sale is the wrong transaction, at the wrong time, for the wrong reasons."

Red Lobster has been struggling with declining sales. Its total sales fell 1.7 percent to $2.62 billion in 2013, according to Darden’s annual financial report, and have hovered around the $2.6 billion range for years. The chain has expanded its menu with more non-seafood options to attract a wider audience.

American Realty Capital Properties also announced its entry into a $1.5 billion sale-leaseback transaction for more than 500 Red Lobster restaurants, in conjunction with Golden Gate Capital’s acquisition of the seafood chain.