Barington Capital calls for Darden breakup, real estate spinoff

Reuters

By Olivia Oran

Oct 17 (Reuters) - Olive Garden and Red Lobster parentDarden Restaurants Inc should break itself up andexplore spinning off its real estate properties, activistinvestor Barington Capital Group said in a letter on its websiteon Thursday.

New York-based Barington, which is working with a group ofinvestors that own more than 2 percent of the restaurantcompany, brought these ideas to Darden management in the letterdated Sept. 23.

Barington said it had met with members of Darden managementin June.

Shares of Darden were up 0.5 percent at $50.91 in middaytrading. The stock has fallen nearly 8 percent in the last 12months as consumers have cut spending, and the company has facedcompetition from brands like Panera Bread Co andChipotle 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 LongHornSteakhouse, The Capital Grille, Yard House and Bahama Breeze.

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

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

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

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

A Darden spokesman said in a statement that the companywould not comment on discussions with shareholders, butconfirmed it had talks with Barington.

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

In the first quarter ended Aug. 25, Darden's net income fell37 percent to $70.2 million, or 53 cents per share.

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

Darden is just the latest activist target in the restaurantindustry over the last several months. Others that have drawnattention from activist investors include Tim Hortons Inc, Bob Evans Farms Inc and Cracker Barrel OldCountry Store Inc.

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

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