Welcome!

News Feed Item

Starboard Delivers Letter to Darden Restaurants CEO and Board of Directors

Continues to Believe the Company's Plan to Separate Red Lobster is Not in the Best Interests of Shareholders and Could Potentially Destroy Substantial Value

NEW YORK, Feb. 10, 2014 /PRNewswire/ -- Starboard Value LP (together with its affiliates, "Starboard"), one of the largest shareholders of Darden Restaurants, Inc. ("Darden" or the "Company") (NYSE: DRI), with ownership of approximately 5.5% of the outstanding common stock of the Company, today announced that it has delivered a letter to the Company's Chairman and CEO, Clarence Otis, and the Company's Board of Directors.

The full text of the letter follows:

February 10, 2014

 

Darden Restaurants, Inc.
1000 Darden Center Drive
Orlando, FL 32837
Attn: Clarence Otis, Chairman and Chief Executive Officer

cc: Board of Directors

Dear Clarence,

We appreciate the time that you and your team spent with us in Orlando on January 29th.  Starboard Value LP, together with its affiliates ("Starboard"), currently owns approximately 5.5% of the outstanding common stock of Darden Restaurants, Inc. ("Darden", or the "Company"), making us one of the Company's largest shareholders.  As we previously indicated, we have conducted extensive research on the Company and the casual dining industry, and we believe substantial opportunities exist to create value for all shareholders within the control of management and the board of directors of the Company (the "Board").  Although we appreciate your efforts during our meeting to address our concerns regarding the current plan to spin-out or sell Red Lobster, we continue to believe the plan is not in the best interests of shareholders and could potentially destroy substantial value. 

As you know, we issued a letter on January 21st, 2014 expressing our serious concerns with the proposed separation of Red Lobster and urging the Board to undertake a comprehensive review of all available operational, financial, and strategic alternatives to create value for shareholders.  A copy of that letter is available at http://tinyurl.com/Starboard-Letter-to-Darden.  We were surprised and terribly disappointed with the Company's hurried response, just a few hours after the release of our letter, reaffirming the Company's intention to move forward with its existing plan, including the separation of Red Lobster.  This hasty response, lacking any substance, demonstrates the Board is intent on ignoring the serious concerns voiced by significant shareholders regarding the proposed Red Lobster separation and is unwavering in its commitment to consummate the proposed separation despite the potential destruction of shareholder value.  

Over the past two weeks, we have had a chance to speak with a number of Darden shareholders.  These shareholders have expressed similar concerns regarding the current plan and their desire for the Company to undertake a more fulsome review of all available opportunities to create value for shareholders.  Additionally, these shareholders are all acutely aware that completing a spin-off or sale of Red Lobster without fully and objectively evaluating opportunities for the Company's owned real estate could result in substantial shareholder value destruction.

It appears that the Company currently intends to complete the Red Lobster separation prior to holding the Company's 2014 Annual Meeting of Shareholders (the "2014 Annual Meeting"), when all of the Company's directors will be up for election.  Should the Board force through this ill-conceived and potentially value destructive plan while continuing to ignore the input of its major shareholders, it would clearly demonstrate that this Board does not regard acting in the best interests of shareholders as its primary directive.  We are currently evaluating all options in furtherance of providing a means for shareholders to have their voices heard on the proposed Red Lobster separation prior to its completion.  We are also prepared to take all steps necessary to hold the Board accountable for its actions, including nominating a majority slate of director candidates and seeking the support of our fellow shareholders to replace a majority of the Board at the 2014 Annual Meeting.

We hope this will prove unnecessary.  We ask that you and the Board take a step back, listen to your shareholders, and do what is right. 

We continue to conduct our own analysis of Darden and look forward to publicly sharing the results of our independent review.  This analysis will include a detailed discussion of the key value creation opportunities that we have identified through our in-depth research and our discussions with other large shareholders of Darden, including:

  1. A substantial Company-wide (not just Red Lobster-specific) operational improvement plan, including meaningful cost reductions and other changes that will put restaurant performance on par with Darden's better-performing peers;
  2. An evaluation of all options for the Company's real estate holdings, including a tax-efficient sale or REIT spin-off of the owned properties;
  3. An evaluation of the most logical and efficient combination of restaurant concepts to be spun out or otherwise separated from Darden.  As an example, the creation of a mainstream casual dining company including Red Lobster, Olive Garden, and LongHorn, and a high-end growth restaurant company including the five niche brands that currently operate as part of the Specialty Restaurant Group; and
  4. An evaluation of other value creation initiatives, such as franchising certain concepts to take advantage of international growth opportunities, as well as domestic opportunities in certain markets, and re-franchising certain existing stores in markets where Darden has operational deficiencies, in order to improve both restaurant operating performance and returns on capital.  

As part of this broad assessment of value creation opportunities, we would also like to engage with you regarding the composition of the Board.  It is our belief that, given the dismal historical performance of Darden under the guidance of the existing Board, and the required actions needed to return the Company to profitable growth, immediate changes in Board composition are absolutely required.   

Darden's stock price performance has been abysmal over almost any time period.  Most notably, the Company has underperformed its closest direct competitors by a shocking 300% over the past five years.



























Share Price Performance(1)




1 Year

3 Year

5 Year









S&P 500

22%

45%

131%



Russell 3000 Restaurant Sector Index

20%

67%

181%



Proxy Group (2)

30%

84%

356%



Closest Direct Competitors (3)

33%

76%

408%









DRI

7%

11%

100%









Underperformance vs. S&P 500

(15%)

(34%)

(31%)



Underperformance vs. Closest Peers

(26%)

(65%)

(309%)









Source: CapitalIQ






1. Performance as of 2/7/14, adjusted for dividends






2. Proxy Group consists of companies used in the Company's proxy to set executive compensation



3. Includes EAT, BLMN, DIN, BWLD, TXRH, RT, RRGB, BBRG, CAKE and DFRG














We recognize that the changes necessary to improve upon this performance are substantial, but we ask that you and the Board approach our engagement with an open mind.  Our goal is to work with you to take the actions required to set the Company back on the right track towards profitable growth and shareholder value creation.  We are, after all, one of the Company's largest shareholders, and our sole motivation is to ensure the best outcome for all shareholders.     

Thank you for your time and attention.  We will make ourselves available at your convenience to discuss these and other topics.

Best Regards,

Jeffrey C. Smith
Managing Member
Starboard Value LP

About Starboard Value LP
Starboard Value LP is a New York-based investment adviser with a focused and differentiated fundamental approach to investing in publicly traded U.S. small cap companies. Starboard invests in deeply undervalued small cap companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.

Investor contacts:
Peter Feld, (212) 201-4878
Gavin Molinelli, (212) 201-4828
www.starboardvalue.com

SOURCE Starboard Value LP

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
In his session at @ThingsExpo, Eric Lachapelle, CEO of the Professional Evaluation and Certification Board (PECB), provided an overview of various initiatives to certify the security of connected devices and future trends in ensuring public trust of IoT. Eric Lachapelle is the Chief Executive Officer of the Professional Evaluation and Certification Board (PECB), an international certification body. His role is to help companies and individuals to achieve professional, accredited and worldwide re...
Amazon started as an online bookseller 20 years ago. Since then, it has evolved into a technology juggernaut that has disrupted multiple markets and industries and touches many aspects of our lives. It is a relentless technology and business model innovator driving disruption throughout numerous ecosystems. Amazon’s AWS revenues alone are approaching $16B a year making it one of the largest IT companies in the world. With dominant offerings in Cloud, IoT, eCommerce, Big Data, AI, Digital Assista...
When growing capacity and power in the data center, the architectural trade-offs between server scale-up vs. scale-out continue to be debated. Both approaches are valid: scale-out adds multiple, smaller servers running in a distributed computing model, while scale-up adds fewer, more powerful servers that are capable of running larger workloads. It’s worth noting that there are additional, unique advantages that scale-up architectures offer. One big advantage is large memory and compute capacity...
Both SaaS vendors and SaaS buyers are going “all-in” to hyperscale IaaS platforms such as AWS, which is disrupting the SaaS value proposition. Why should the enterprise SaaS consumer pay for the SaaS service if their data is resident in adjacent AWS S3 buckets? If both SaaS sellers and buyers are using the same cloud tools, automation and pay-per-transaction model offered by IaaS platforms, then why not host the “shrink-wrapped” software in the customers’ cloud? Further, serverless computing, cl...
You know you need the cloud, but you’re hesitant to simply dump everything at Amazon since you know that not all workloads are suitable for cloud. You know that you want the kind of ease of use and scalability that you get with public cloud, but your applications are architected in a way that makes the public cloud a non-starter. You’re looking at private cloud solutions based on hyperconverged infrastructure, but you’re concerned with the limits inherent in those technologies.
The taxi industry never saw Uber coming. Startups are a threat to incumbents like never before, and a major enabler for startups is that they are instantly “cloud ready.” If innovation moves at the pace of IT, then your company is in trouble. Why? Because your data center will not keep up with frenetic pace AWS, Microsoft and Google are rolling out new capabilities. In his session at 20th Cloud Expo, Don Browning, VP of Cloud Architecture at Turner, posited that disruption is inevitable for comp...
Internet of @ThingsExpo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devic...
IoT solutions exploit operational data generated by Internet-connected smart “things” for the purpose of gaining operational insight and producing “better outcomes” (for example, create new business models, eliminate unscheduled maintenance, etc.). The explosive proliferation of IoT solutions will result in an exponential growth in the volume of IoT data, precipitating significant Information Governance issues: who owns the IoT data, what are the rights/duties of IoT solutions adopters towards t...
It is ironic, but perhaps not unexpected, that many organizations who want the benefits of using an Agile approach to deliver software use a waterfall approach to adopting Agile practices: they form plans, they set milestones, and they measure progress by how many teams they have engaged. Old habits die hard, but like most waterfall software projects, most waterfall-style Agile adoption efforts fail to produce the results desired. The problem is that to get the results they want, they have to ch...
Wooed by the promise of faster innovation, lower TCO, and greater agility, businesses of every shape and size have embraced the cloud at every layer of the IT stack – from apps to file sharing to infrastructure. The typical organization currently uses more than a dozen sanctioned cloud apps and will shift more than half of all workloads to the cloud by 2018. Such cloud investments have delivered measurable benefits. But they’ve also resulted in some unintended side-effects: complexity and risk. ...
With the introduction of IoT and Smart Living in every aspect of our lives, one question has become relevant: What are the security implications? To answer this, first we have to look and explore the security models of the technologies that IoT is founded upon. In his session at @ThingsExpo, Nevi Kaja, a Research Engineer at Ford Motor Company, discussed some of the security challenges of the IoT infrastructure and related how these aspects impact Smart Living. The material was delivered interac...
"When we talk about cloud without compromise what we're talking about is that when people think about 'I need the flexibility of the cloud' - it's the ability to create applications and run them in a cloud environment that's far more flexible,” explained Matthew Finnie, CTO of Interoute, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
No hype cycles or predictions of zillions of things here. IoT is big. You get it. You know your business and have great ideas for a business transformation strategy. What comes next? Time to make it happen. In his session at @ThingsExpo, Jay Mason, Associate Partner at M&S Consulting, presented a step-by-step plan to develop your technology implementation strategy. He discussed the evaluation of communication standards and IoT messaging protocols, data analytics considerations, edge-to-cloud tec...
The Internet giants are fully embracing AI. All the services they offer to their customers are aimed at drawing a map of the world with the data they get. The AIs from these companies are used to build disruptive approaches that cannot be used by established enterprises, which are threatened by these disruptions. However, most leaders underestimate the effect this will have on their businesses. In his session at 21st Cloud Expo, Rene Buest, Director Market Research & Technology Evangelism at Ara...
A look across the tech landscape at the disruptive technologies that are increasing in prominence and speculate as to which will be most impactful for communications – namely, AI and Cloud Computing. In his session at 20th Cloud Expo, Curtis Peterson, VP of Operations at RingCentral, highlighted the current challenges of these transformative technologies and shared strategies for preparing your organization for these changes. This “view from the top” outlined the latest trends and developments i...