Darden To Sell Red Lobster To Golden Gate Capital In $2.1 Bln Deal

(RTTNews) - Darden Restaurants, Inc. (DRI) Friday said 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 cash.

In December 2013, Darden had said it was looking to sell or spin-off its struggling seafood dining Red Lobster. The first Red Lobster was opened in Lakeland, Florida in 1968.

The Orlando-based restaurant operator Darden expects nearly $1.6 billion net cash proceeds, after tax and transaction costs, of which around $1 billion will be used to retire outstanding debt.

Darden noted that the remaining net proceeds of about $500 million to $600 million will be deployed for a new share buyback program of up to $700 million in fiscal 2015. Darden expects the Red Lobster business sale to close in the first fiscal quarter of 2015.

The purchase price is about 9x Red Lobster's earnings before interest, taxes, depreciation and amortization or EBITDA for the twelve months ended April 27, 2014.

Further to strengthening the firm's credit metrics, with lower debt levels and reduced outstanding share count, Darden expects to maintain its current quarterly dividend of $0.55 per share, or $2.20 annually.

According to Darden, it has significantly reduced operating support costs, under its strategic action plan. This will reflect prior announced savings of at least $60 million annually beginning in fiscal 2015 and additional savings identified during its work to separate Red Lobster.

Darden stated that it explored numerous separation alternatives for Red Lobster.

Clarence Otis, Darden's Chairman and CEO said, "By enabling us to bolster the Company's financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the Company's dividend and regain momentum at Olive Garden."

Early last month, investment firm Starboard Value LP, which holds a 5.5 percent stake in Darden said that Darden's plan to spin off the Red Lobster chain was the wrong spin-off, at the wrong time, and for the wrong reasons.

In late March, another investment firm Barington Capital Group L.P. urged the independent directors of Darden to replace Chairman and Chief Executive Officer Clarence Otis, while objecting to spin-off plans for the Red Lobster chain.

DRI is currently trading at $48.91, down 3.51 percent.