Darden Sells Red Lobster to Golden Gate for $2.1B

NEW YORK (The Deal) -- After running a five-month strategic review, Darden Restaurants  (DRI) said Friday it has agreed to sell Red Lobster to Golden Gate Capital for about $2.1 billion in cash on a debt-and-cash-free basis.

The sale comes after 57% of Darden shareholders agreed last month to hold a special meeting to vote on a nonbinding proposal issued by Starboard Value to consider delaying the company's planned sale or spinoff of its Red Lobster chain.

Starboard did not return calls for comment Friday morning. The activist investor has previously argued that shareholder support for the meeting and vote indicates that investors are opposed to a quick sale of Red Lobster without first considering whether the company should consider spinning off all of its real estate separately.

Darden still has time to call the special meeting, though Starboard and the company are in dispute over whether, according to company bylaws, it has 60 days to call the meeting from when Starboard delivered its sale consents - April 22 - or from when they got the results certified days after.

Starboard and Barington Capital Group have said they would prefer that instead of a Red Lobster sale, Darden could consider other strategic alternatives such as the divestiture of all the company's real estate into a separately traded REIT, not just the Red Lobster real estate.

The activists - and other investors - are likely surprised that the company announced the sale so quickly. The company had originally set early May as a deadline for selling Red Lobster. On Wednesday, Starboard noted in a securities filing that Darden told a group of shareholders "attending a lunch in New York" that the company is on a timetable to complete a sale or spinoff of Red Lobster by June or July.

Orlando, Fla.-based Darden said it was afraid that it was not going to receive the same kind of offers for Red Lobster or even be able to restart the sale process if it was delayed. The company also added that many shareholders remain undecided on how they will vote at the special meeting.

Darden valued the sale at around 9 times Red Lobster's $229 million in Ebitda for the trailing 12 months ended April 27. The company said it expects to receive after-tax proceeds of about $1.6 billion from the sale, $1 billion of which it will use to pay down debt and the remainder to buyback shares.

Darden hired Goldman Sachs (GS) at the end of its 2013 fiscal year to review options for Red Lobster. During the process, Darden considered a combination of selling, spinning off Red Lobster and separating its real estate assets. Darden contacted about 70 strategic and financial bidders as well as 25 real estate buyers during the process.

"Over the past months, we have had extensive conversations with our shareholders about Darden and the company's strategic direction," said Darden chairman and CEO Clarence Otis in a Friday statement. "By enabling us to bolster the company's financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised."

As part of the deal, Darden has reached a $1.5 billion sale-leaseback agreement with American Realty Capital Properties (ARCP), the proceeds of which will be used to help Golden Gate finance the acquisition.

Darden also announced on Friday it had hired restructuring firm Alvarez & Marsal to help cut operating costs.

Goldman Sachs advised Darden. Latham & Watkins' David Dantzic, Jennifer Perkins, Edward Sonneschein, Pardis Zomorodi, Laurence Stein and James Hisiger provided legal counsel. Morgan Stanley and Wachtell, Lipton, Rosen & Katz's Daniel Neff, Sabastian Niles, Stephanie Seligman and Francis Stapleton advised Darden's board.

Deutsche Bank Securities and Jefferies advised Golden Gate. Deutsche Bank, GE Capital and Jefferies Finance  are providing financing on the transaction. Kirkland & Ellis represented Golden Gate Capital with a team including Mikaal Shoaib, Tana Ryan, John Caruso and Joshua Hanna.

Darden said it expects to complete the Red Lobster deal by the end of its fiscal 2015 first quarter. Darden shares opened 4% lower, to $48.71, on Friday morning, giving it a market a capitalization of around $6.4 billion.

-- Ron Orol contributed to this report.

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