Ahead of the Bell: Darden rises premarket

Starboard Value discloses stake in Darden, wants changes beyond Red Lobster sale or spin off

Associated Press

NEW YORK (AP) -- Shares of Darden Restaurants rose in premarket trading Monday after activist investor Starboard Value disclosed a stake in the company and said it will push for big changes.

Darden said Thursday that it wants to spin off or sell its Red Lobster business as part of its plan to boost value for its shareholders. It will also suspend the opening of new Olive Garden locations, cut back on new LongHorn Steakhouse restaurants, and won't make any acquisitions of additional brands "for the foreseeable future." Starboard Value LP said those moves don't go far enough.

Starboard now owns 7.3 million shares of the Orlando, Fla., company. That's a 5.6-percent stake, and according to FactSet, it makes Starboard the fourth-largest holder of Darden shares.

Darden shares closed at $51.09 on Friday and rose $1.33, or 2.6 percent, to $52.42 in premarket trading. The stock has risen 10.4 percent since Oct. 8.

Starboard said it believes Darden has a significant opportunity to improve its operating performance, although it did not disclose details about that opportunity. It also said Darden could get a lot of value from its real estate holdings and should explore other options like selling or separating other businesses. Starboard wants to have talks with Darden's board and said it may make recommendations on strategy, spending, financial performance, and board composition.

Red Lobster is the biggest full service dining seafood specialty restaurant operator in North America. It has 705 restaurants in the U.S. and Canada and reported about $2.6 billion in sales in fiscal 2013. Restaurant chains such as Olive Garden and Red Lobster have suffered since the downturn, with customers being more careful about their spending. People are also increasingly heading to chains such as Chipotle, where food tends to cost less and the experience takes less time than a sit-down meal at a restaurant.

In September investment firm Barington Capital LP recommended that Darden consider splitting into two separate companies, with one company housing Olive Garden and Red Lobster and the other its remaining brands. Barrington represents a group that owns more than 2 percent of Darden's shares.

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