Barington Capital calls for Darden breakup, real estate spinoff

October 17, 2013

By Olivia Oran

Oct 17 (Reuters) - Olive Garden and Red Lobster parent Darden Restaurants Inc should break itself up and explore spinning off its real estate properties, activist investor Barington Capital Group said in a letter on its website on Thursday.

New York-based Barington, which is working with a group of investors that own more than 2 percent of the restaurant company, brought these ideas to Darden management in the letter dated Sept. 23.

Barington said it had met with members of Darden management in June.

Shares of Darden were up 0.5 percent at $50.91 in midday trading. The stock has fallen nearly 8 percent in the last 12 months as consumers have cut spending, and the company has faced competition from brands like Panera Bread Co and Chipotle Mexican Grill Inc.

The fund recommends that Darden split into two companies -one for its more mature Olive Garden and Red Lobster brands, and the other for its higher-growth chains including LongHorn Steakhouse, The Capital Grille, Yard House and Bahama Breeze.

Restaurant group Brinker International Inc used a similar strategy, divesting a number of brands over the last several years to focus on Maggiano's Little Italy and Chili's.

Barington said Darden's land and buildings might be worth up to $4.4 billion if they were spun off into a publicly traded real estate investment trust, which would also reduce the company's tax burden. Darden could also explore a sale-leaseback of its real estate properties, the investor said.

Darden owns land and buildings for 1,048 restaurants, and buildings on 802 sites.

"We believe Darden must do more, and with a greater sense of urgency, to create value for shareholders," Barington President James Mitarotonda said in the letter.

A Darden spokesman said in a statement that the company would not comment on discussions with shareholders, but confirmed it had talks with Barington.

"The Board will take the time necessary to thoroughly evaluate Barington's suggestions, just as the Company does for any of its shareholders," he added.

In the first quarter ended Aug. 25, Darden's net income fell 37 percent to $70.2 million, or 53 cents per share.

The company has said it plans to cut $50 million in operating costs per year starting in fiscal 2015.

Darden is just the latest activist target in the restaurant industry over the last several months. Others that have drawn attention from activist investors include Tim Hortons Inc , Bob Evans Farms Inc and Cracker Barrel Old Country Store Inc.

Barington successfully lobbied for apparel group Jones Group Inc to sell its noncore brands. The company is now involved in a sales process, sources previously told Reuters.