The Orlando, Fla.-based restaurant conglomerate announced plans to either sell or spin off Red Lobster. Citing changing consumer trends, Darden CEO Clarence Otis said Thursday that Red Lobster needs to become independent in order to be a successful brand once again.
New York hedge fund Barington Capital Group LP, a 2% Darden shareholder, has been pressuring Darden to separate Red Lobster and Olive Garden from Yard House, Capital Grille, Seasons 52, Eddie V's, Bahama Breeze and LongHorn Steakhouse.
Now Otis and the company's board have to decide whether to sell or spin off Red Lobster into an independent public company.
Industry watchers said Thursday that Red Lobster is not ready to stand alone in the public spotlight. Instead the chain, which owns about 700 restaurants, needs to spend at least a couple of years fixing itself under private equity ownership.
Red Lobster saw its sales drop by 4.9%, to $561 million, in the third quarter, from $590 million in sales through the same time period one year ago. Darden blamed the drop on rising food prices and lower consumer spending.
Industry sources believe that Red Lobster can fetch at least 6 to 7 times Ebitda multiple in a sale, or up to $1.8 billion, based on Red Lobster's $261 million annual Ebitda. That valuation is not far off compared to the largest restaurant deal this year when Apollo Global Management LLC sold fast food operator CKE Inc. last month to Atlanta private equity firm Roark Capital Group for $1.7 billion, or around 7 to 8 times Ebitda.