Barington Capital Opposes Darden's Sale Of Its Red Lobster Business

(RTTNews) - James Mitarotonda, Chairman and Chief Executive Officer of Investment firm Barington Capital Group, L.P., which represents a group of shareholders of Darden Restaurants, Inc. (DRI), expressed strong opposition to Darden's recent announcement of the sale of its Red Lobster business.

Darden said Friday that it has entered into a definitive agreement to sell its Red Lobster business and certain other related assets and assumed liabilities to San Francisco-based private equity investment firm Golden Gate Capital for $2.1 billion in cash.

''While the announced deal reinforces the value of Darden's vast real estate assets and the benefits of establishing separate brand-focused operating companies, as structured, we believe it destroys more value than it creates,'' Mitarotonda said.

The company's announced valuation of the transaction at approximately 9 times trailing twelve months Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA is grossly misleading as it includes the value of Red Lobster's real estate.

After accounting for the $1.5 billion sale-leaseback, Golden Gate Capital is paying only approximately $600 million for Red Lobster's restaurant operations.

Based on Red Lobster's pro forma EBITDA of $115 million, it appears that Golden Gate is paying less than 5.5 times pro forma EBITDA.

In comparison, Darden's mature brand competitors, as stand-alone entities, trade at 9 times to 10 times EBITDA.

The transaction also generates $500 million of taxes and transaction costs that could be avoided if the Board proceeded with alternative restructuring opportunities that Barington and other shareholders have recommended, the firm believes.

Barington Capital said the Red Lobster transaction confirms the significant value of the company's real estate, but it would unfortunately preclude the company from entering into a variety of value maximizing transactions with respect to these assets with potentially lower tax and transaction costs, such as the creation of an independent real estate investment trust.

Barington Capital believes that shareholders would have been better off if Darden spun-off Red Lobster.

''It is clear to us from the Board's decision to pursue this imprudent transaction and its horrific record in the area of corporate governance, that Darden's independent directors are neither focused on, nor responsive to, shareholder concerns,'' the statement added.