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Barington Turns Up Pressure On Darden

Stocks in this article: DRI GS

NEW YORK (The Deal) -- Barington Capital Group won't have its fill with just lobster.

The activist shareholder, which has led a campaign to break up Darden Restaurants (DRI - Get Report), said Thursday that the company's plan to sell or spin off Red Lobster is not enough.

During a Thursday conference call hosted by Hedge Fund Solutions managing partner Damien Park, Barington founder James Mitarotonda said his proposal for Darden to separate Olive Garden and Red Lobster is just the "initial step" aimed at increasing shareholder value at the Orlando, Fla.-based restaurant conglomerate.

Mitarotonda said he would like Darden to look at additional potential divestitures and spinoffs other than Red Lobster and Olive Garden, but did not cite any specific brands. Darden owns such brands as Yard House, Capital Grille, Seasons 52, Eddie V's, Bahama Breeze and LongHorn Steakhouse.

Darden said on Dec. 19 that it hired Goldman Sachs  (GS - Get Report) to explore a sale or a spin off of Red Lobster.

Mitarotonda called the move a good start, but accused Darden chairman and CEO Clarence Otis of just doing enough to get by. He is not calling for Otis to step down, but at the very least wants Darden to appoint a separate chairman.

Mitarotonda said that a Red Lobster sale would not be beneficial if it includes real estate. Instead, he wants Red Lobster to spin off its real estate, which he values at around $1.6 billion, before the chain sells itself.

Mitarotonda blamed Otis for making too many acquisitions, namely Darden's $1.4 billion deal for Rare Hospitality International in 2007 and its $585 million purchase of Yard House in 2012. The latter had shown great growth potential before Darden bought it, but its sales started declining as soon as Darden started integrating it, according to Mitarotonda.

"The company has acquired too many brands," Mitarotonda said. "As a result, Darden has become too complex in our view."

Earlier this month, New York's Starboard Value, led by Jeffrey Smith, called on Darden to separate LongHorn Steakhouse alongside Olive Garden and Red Lobster. That is a slight modification to Mitarotonda's proposal, which he has no problems with.

"We are encouraged that another experienced investor has studied Darden and has come to the same basic conclusion as we did," Mitarotonda said.

Darden shares traded 10 cents higher, to $49.30, on Thursday afternoon, giving it a market capitalization of around $6.5 billion.

The company did not return calls on Thursday.

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