ORLANDO, Fla., May 16, 2014 /PRNewswire/ -- Darden Restaurants, Inc. (NYSE: DRI) today announced that it has entered into a definitive agreement to sell its Red Lobster business and certain other related assets and assumed liabilities to Golden Gate Capital for $2.1 billion in cash.
Darden expects to receive net cash proceeds, after tax and transaction costs, of approximately $1.6 billion, of which approximately $1.0 billion will be used to retire outstanding debt. The remaining net proceeds of approximately $500 million to $600 million will be deployed for a new share repurchase program of up to $700 million in fiscal 2015. In addition to strengthening the Company's credit metrics, with the lower debt levels and reduced outstanding share count, Darden expects to maintain its current quarterly dividend of $0.55 per share, or $2.20 annually.
The agreement announced today is the culmination of a robust process to maximize the value potential of a sale or spin-off of Red Lobster and its real estate assets. As part of this process, the Company and its advisors directly contacted a broad universe of potential financial and strategic buyers to purchase the Red Lobster business. In addition, a significant number of real estate buyers were also contacted to facilitate attractive sale-leaseback financing for the purchase of the Red Lobster business.
In reaching the conclusion that this agreement is in the best interest of all Darden's shareholders, the Darden Board considered, among other things, that:
- The all cash consideration provides Darden with immediate and certain value to reduce debt and support its capital return initiatives, including maintaining the Company's dividend, which Darden shareholders have stated is a priority. In the past five fiscal years, Darden has returned nearly $2 billion to shareholders through share repurchases and dividends;
- The purchase price is approximately 9x Red Lobster's earnings before interest, taxes, depreciation and amortization (EBITDA) for the twelve months ending April 27, 2014;
- The transaction maximizes the value of the Red Lobster business, while eliminating the risks and uncertainties to Darden and Darden shareholders relating to Red Lobster's turnaround or to separately monetizing the Red Lobster real estate assets;
- The Company explored numerous separation alternatives for Red Lobster and the value potential of each, including (i) a spin-off of the Red Lobster business, (ii) a sale of the Red Lobster business, (iii) a spin-off of the Red Lobster operating company and a separate sale of its real estate, (iv) retaining the Red Lobster operating company and separating its real estate, and (v) retaining both the Red Lobster operating company and its real estate. The Board concluded that the agreement with Golden Gate Capital is the superior value creating alternative;
- The agreement is structured to minimize closing risk. Golden Gate Capital has obtained committed debt financing, has fully executed a separate sale-leaseback agreement, and its offer is subject to customary closing conditions and regulatory approvals; and
- The separation of Red Lobster from Darden will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities.
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