Starboard Weighs in on Red Lobster's Darden

NEW YORK ( The Deal) -- While activists have called for Darden Restaurants ( DRI) to spin off its Red Lobster chain, Jeffrey Smith's Starboard Value LP actually wants the restaurant conglomerate to hold off, at least for now.

New York-based Starboard, which owns a 5.5% stake in Darden, sent a letter to Darden CEO Clarence Otis on Tuesday, indicating that Darden should hold off on spinning off Red Lobster so it can explore a full range of strategic alternatives.

"We believe the company should more fully evaluate all available operational, financial, and strategic alternatives for Darden in order to create and execute on a comprehensive plan to address all aspects of the business and to ensure the best possible outcome for all shareholders," Smith wrote in his letter.

Starboard is calling for Darden to spin off its real estate, franchise company-owned stores and reduce costs.

Orlando, Fla.-based Darden said on Dec. 19 that it will look to either sell or spin off Red Lobster and hired Goldman, Sachs & Co. to help look at its options. Industry sources said they believe Red Lobster can fetch less than $2 billion in a sale.

However, New York hedge fund Barington Capital Group LP, a 2% Darden shareholder, has been demanding that Darden spin off Olive Garden as well as Red Lobster and also wants the company to spin off its real estate assets into a separate REIT. Barington said it believes that Darden's real estate is worth around $4 billion.

Barington and Starboard have accused Darden's management of doing just the bare minimum to increase shareholder value.

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