The buyer, Golden Gate Capital, is getting a great deal, despite Red Lobster's recent struggles.
This marks the end of an era for Darden, which had also been considering spinning off Red Lobster. The company has been also been facing pressure from activist investors, such as Barrington Capital, which was urging Darden to spin off its vast real estate holdings -- primarily company-owned Red Lobster and Olive Garden locations -- into a publicly traded real estate investment trust. The sale of Red Lobster ends that possibility, which Barrington had believed was the best way to maximize the value of Darden real estate.
In fact, Darden owns more than 1,000 restaurant locations (land and building) and an additional 800 buildings on leased land. That's a potentially formidable portfolio of real estate, especially given the typical high-profile locations of Darden's restaurants.The $2.1 billion deal values each of the 705 Red Lobster locations at just under $3 million. That seems like a small price to pay, considering that it includes the land and buildings for many of those locations. Country dining chain Cracker Barrel (CBRL) can be used to help put the Red Lobster deal in perspective. Cracker Barrel is comparable to Red Lobster in terms of size (624 restaurants), ownership of real estate (412 locations) and annual revenue (both at about $2.6 billion). Yet the market values Cracker Barrel at $2.65 billion on an enterprise value basis (market cap plus debt minus cash), a figure that would likely be higher if that company was put up for sale.