This week in industry news, SodaStream's sales declined 23 percent, Anthony N. Thompson has been named the new president and CEO of Krispy Kreme Doughnuts Inc., and Darden Restaurants Inc. will sell Red Lobster to Golden Gate Capital for $2.1 billion.
Read on for more of this week's biggest financial news in the world of food.
SodaStream: Company sales declined 28 percent in the first quarter.
Qdoba: In the second quarter, the company exceeded sales expectations due to new menu items and growth in catering.
Smithfield Foods: The company’s profit soared in the first quarter due to a demand for fresh pork.
Photo Credit: Flickr/Neal Jennigs
Krispy Kreme Doughnuts: Anthony N. Thompson has been named the new president and CEO of Krispy Kreme Doughnuts Inc., effective June 1. Thompson was previously president and chief operating officer of Papa John’s International Inc. James H. Morgan, who is stepping down from the two positions, will continue to serve as executive chairman for the company.
Coffee Bean & Tea Leaf: The company has named Karen Cate, who was formerly the vice president and controller of Trader Joe’s Company, its new chief financial officer and Jeff Schroeder, who was previously the vice president of brewery restaurants for Karl Strauss Brewing Company, its new vice president of operations. Cate will oversee all accounting, finance, treasury and IT functions while Schroeder will oversee the operations, customer relations and training for all domestic company-owned and franchised locations.
B&G Foods: After 21 years of leadership, B&G Foods’ president and CEO David Wenner will retire in December.
Papa John’s: Steve Ritchie, who previously served as senior vice president for global operations, has been promoted to chief operating officer, overseeing global operations support and training in more than 4,4,00 restaurants in 35 nations.
Coca-Cola Co.: After initially announcing a 10 percent stake in Keurig Green Mountain, Coca-Cola Co. plans to increase its stake to 16 percent for about $1.25 million.
Photo Credit: Flickr/chicco
Mondelēz Global L.L.C.: The company plans to invest more than $40 million to expand its biscuit bakery, which makes Nabisco crackers and cookies, including Ritz, Wheat Thins, Premium crackers, Oreo and Chips Ahoy! cookies, and Nilla wafers, in Richmond, Va.
Daphne’s California Greek: The fast-casual chain has been acquired by Victory Park Capital Advisors. The terms of the deal were not disclosed.
Pinnacle Foods Group: The Hillshire Brands Co. acquired Pinnacle Foods Group for about $6.6 billion.
Darden Restaurants: The company will sell Red Lobster to San Francisco-based private equity firm Golden Gate Capital for $2.1 billion in cash.
Grupo Bimbo, S.A.B. de C.V.: The company’s acquisition of Canada Bread Co. Ltd. is set to close May 23
Have the inside scoop on a merger or acquisition? Know of a new advertising campaign around a new iconic product? We’re always looking to get ahead of the game, so email us your tips.
Darden to Sell Red Lobster in a $2.1 Billion Deal
Updated, 8:19 p.m. | Investors argued publicly for months against Darden Restaurants’ plans to spin off Red Lobster, the 46-year-old seafood chain that was the root of the company’s dining empire.
On Friday, Darden batted away those concerns by agreeing to sell the restaurant brand, which owns more than 680 outlets in the United States and Canada, to the private equity firm Golden Gate Capital for $2.1 billion in cash.
The announcement is the latest twist in the most public challenge yet to Darden and its chief executive, Clarence Otis, as it continues to try to regain the customers it lost during the recent recession.
Friday’s deal is perhaps the biggest rebuke so far to the activist investors, who have called for a more drastic breakup of the casual dining company. The deal does not require the approval of shareholders, making it unlikely that the disaffected hedge funds can stop the transaction.
Darden announced plans five months ago to spin off or sell Red Lobster, a move that it said would be good for investors by allowing it to focus on core holdings like Olive Garden. Since then, it had contacted dozens of potential buyers before settling on Golden Gate Capital, a private equity firm that also owns California Pizza Kitchen.
Part of the deal will be financed by a separate $1.5 billion transaction in which a real estate firm, American Realty Capital Properties, will buy Red Lobster’s properties and lease them back.
On Friday, Darden executives said that the sale would give it $1.6 billion in net cash immediately. About $1 billion of that will go toward paying down debt, while the remainder will help finance a new stock buyback program of up to $700 million.
“I think this maximizes value and minimizes risk,” Mr. Otis said in an interview. “It’s highly value creating.”
The dissident investors, who had successfully corralled enough support to win a special shareholder meeting later this year on the sale, felt differently.
The chief executive of one of the two activist hedge funds, Starboard Value, said in a statement on Friday that the sale “woefully undervalues” Red Lobster. The executive, Jeffrey Smith, added, “This board’s value-destructive and self-serving actions fly in the face of corporate democracy.”
The chairman and chief executive of the other investment firm, James Mitarotonda of Barington Capital Group, called the deal “unconscionable” and argued that it was struck at a 𠇏ire sale” price.
Privately, some investors complained that the sale-leaseback transaction meant that Golden Gate Capital was paying only about $600 million for Red Lobster’s operations. They also argued that Darden was paying an unreasonably high $500 million in taxes on the deal.
Shares in Darden fell more than 4 percent on Friday, to $48.49, though Mr. Otis attributed that, in part, to short-term investors who had bet on a bigger shake-up.
When asked about the lack of a shareholder vote on the deal, the lead director of Darden’s board, Chuck Ledsinger, said that the company had requested such a provision during its negotiations with Golden Gate and other prospective buyers. But it was rebuffed.
“It was clearly communicated during this process, by all bidders, that uncertainty was unacceptable,” Mr. Otis said.
Furthermore, the Darden chief executive said that waiting until after the special shareholder meeting — whose vote would have been nonbinding in any case — could have prompted Golden Gate Capital to walk away.
A spokesman for the private equity firm declined to comment.
Barring any surprises, the Red Lobster deal is expected to close by next summer. Afterward, Darden will focus on improving its remaining properties, particularly the biggest one it has left.
“One of our most important priorities is regaining operating momentum at Olive Garden,” Mr. Otis said.
Darden was advised by Goldman Sachs and the law firm Latham & Watkins, while its board received advice from Morgan Stanley and the law firm Wachtell, Lipton, Rosen & Katz.
Golden Gate was advised by Deutsche Bank and Jefferies, the investment bank it received financing from the two banks and General Electric’s finance arm.
A version of this article appears in print on 05/17/2014, on page B 3 of the NewYork edition with the headline: Darden Sells Red Lobster In a $2.1 Billion Deal.
Red Lobster split seen as wrong recipe to boost Darden
CHICAGO Shareholders aren't happy with Darden Restaurants' plan to sell or spin off Red Lobster, which doesn't solve the biggest problem: finding more customers.
Darden, also the owner of Olive Garden and LongHorn Steakhouse, slid 3.5 per cent last week after announcing it will separate the Red Lobster seafood chain. Raymond James Financial says a breakup won't create much value for Darden, which is trading at a discount to most of its competitors, according to data compiled by Bloomberg News. The plan also falls short of activist investor Barington Capital Group LP's proposals for a bigger shakeup, including ways to profit from its real estate.
With Red Lobster's same-store sales declining, Darden instead should focus on luring diners to boost returns over the long haul, according to Albert Fried & Co. Some private-equity firms may see an opportunity to buy the chain and bring it back to health, Miller Tabak & Co. said. Acquirers in the U.S. restaurant industry typically pay about the equivalent of the target's revenue, implying $2.6 billion for Red Lobster, data compiled by Bloomberg show. As a stand-alone company, though, it would trade at a discount to other chains, S&P Capital IQ said.
"The market is disappointed and saying, 'OK, this is just a concession,' " said Sachin Shah, a special situations and merger arbitrage strategist at New York-based Albert Fried. "Step one really should be fixing the business. Right now, Darden needs to be aggressive in innovating and investing in the business and changing the mentality that Red Lobster is a mature, stagnant brand. That's how you create long-term value."
Rich Jeffers, a spokesman for Orlando, Fla.-based Darden, said the company is beginning work on a strategic plan for Red Lobster and picked Kim Lopdrup from its specialty restaurant group to lead the effort as chief executive of the chain.
Darden said the separation will allow Red Lobster's marketing and operating strategies to be more tailored to the chain of 705 restaurants. Darden hasn't yet decided whether it will sell Red Lobster or spin it off as a publicly traded company. It expects to close on any deal by the early part of fiscal 2015, which begins in late May.
While Darden is taking steps in the right direction, they're not transformative and "could result in only modest changes in performance," Sara Senatore, an analyst at Sanford C. Bernstein & Co., wrote in a Dec. 19 report. "Specifically, the value of a Red Lobster remains an open question."
Darden's plans for Red Lobster may not be enough on their own, David Tarantino, an analyst at Robert W. Baird & Co., wrote in a Dec. 20 report. The key to creating value for shareholders rests with Darden's ability to boost its operations, "and visibility to such improvement remains low."
The restaurant operator is trailing some of its rivals amid competition for customers who are eating out less. Since the U.S. recession ended in June 2009, the Bloomberg Industries index of North American casual restaurants has climbed 164 per cent, versus only a 55 per cent gain at Darden.
Darden's same-store sales fell in the past six months, and growth at Olive Garden - its largest chain, accounting for more than 40 per cent of revenue - has slowed. While its smaller brands such as The Capital Grille and Eddie V's are seeing a pickup in revenue at restaurants open for more than a year, Red Lobster's same-store sales tumbled 4.6 per cent in the quarter that ended in November after a 2.2 per cent dip in the year that ended in May, according to data compiled by Bloomberg.
"This quarter was very bad" for Red Lobster, said Bryan Elliott, an Atlanta-based analyst at Raymond James. "Its customer base is slowly dissipating."
Shareholder Barington Capital, which has been pressing for changes at the $6.7-billion company, outlined its proposals last week before the restaurant operator announced its own plan. The New York-based hedge fund suggested splitting Darden in two because having more narrowly focused companies would lead to better operational performance. It would involve breaking apart Olive Garden and Red Lobster into one company and the smaller, faster-growing chains into another.
Barington, which owns more than 2 per cent of Darden shares, also said that creating a publicly traded real estate investment trust would unlock the value of the company's properties, which it pegs at about $4 billion.
Darden's plan "fails to address significant opportunities to enhance long-term shareholder value," Barington CEO James Mitarotonda wrote in an email Dec. 19 to Bloomberg News.
There may be private-equity firms that are willing to stomach the turnaround Red Lobster needs and also see value in its real estate, according to Stephen Anderson, a New York-based analyst at Miller Tabak. While Darden is probably too large for a buyout, Red Lobster is about the size financial buyers typically seek, he said.
Similar-sized U.S. restaurants have sold for 0.5 to 1.5 times trailing 12-month revenue, before accounting for any cash or debt, data compiled by Bloomberg show. Using the median multiple of 1, Red Lobster would command about $2.6 billion in a sale.
"Private equity might come in to make some changes to the brand, look for increased efficiencies and close some unprofitable locations," Anderson said.
If Darden doesn't receive any offers for Red Lobster and opts instead to take it public, it will probably fetch a lower valuation than peers as sales remain weak and customers continue to shy away from the rising cost of seafood, according to S&P Capital IQ's Jim Yin. A deal won't have much of an effect on Darden's valuation either, the New York-based analyst said.
Darden's enterprise value last week of $9.5 billion was equal to 7.4 times its trailing 12-month earnings before interest, taxes, depreciation and amortization. That's already lower than 86 per cent of North American casual restaurants, data compiled by Bloomberg show.
Splitting off Red Lobster "will probably be neutral at best," Yin said. "The benefit of the potentially slightly higher valuation of this newer Darden I don't think will compensate for the decreased valuation that will be put on Red Lobster."
Golden Gate Capital to sell Red Lobster Seafood Co. to group led by Thai Union
A group of minority shareholders and current management of Red Lobster Seafood Co. is acquiring the casual-dining chain from Golden Gate Capital, the new controlling consortium said Monday.
The new owners are seafood supplier Thai Union PCL, which has been a Red Lobster shareholder since 2016 and trades on the Stock Exchange of Thailand under the TUI ticker, current Red Lobster management and a new company called Seafood Alliance with key shareholders Paul Kenny and Rit Thirakomen.
Guggenheim is serving as financial advisor and Kirkland & Ellis LLP and Nob Hill Law Group, P.C. are serving as legal advisors to Golden Gate Capital, which is selling its equity stake in the company. PJ Solomon is serving as financial advisor, with Allen & Overy serving as legal advisor to Thai Union.
Thai Union first became financially involved with Red Lobster in 2016, when it invested $575 million in the company and was given two members of its board of directors.
Thirakomen is the Chairman, CEO and controlling shareholder of the Bangkok, Thailand-based MK Restaurant Group, which trades on the Thai Stock Exchange under the ticker M. It has more than 700 restaurants in five countries including MK, Yayoi, Miyasaki and Hakata, specializing in hot pots and Japanese food, as well as Thai food concept Na Siam and quick-service concepts Le Petit and Bizzy Box. It also owns the biotech research firm Mark One Innovation Center, which specializes in functional food and beverages, and the logistics and warehouse business M. Senco.
Kenny is the former CEO of Minor Food Group, which operates more than 2,000 casual-dining and quick-service restaurants in 27 countries under the names The Pizza Company, The Coffee Club, Riverside, Thai Express, Benihana, Bonchon, Swensen's, Sizzler, Dairy Queen and Burger King.
Red Lobster CEO Kim Lopdrup said in a press release announcing the acquisition, “We are thrilled to deepen our relationship with Thai Union, a long-term strategic supplier to Red Lobster and an investment partner for the last four years. Our organization will also benefit from the tremendous international restaurant and hospitality expertise brought by Seafood Alliance. I want to thank Golden Gate Capital for their unwavering support over the past six years and particularly over the past five months.”
Thai Union president and CEO Thiraphong Chansiri indicated that current management would stay in place.
“As an anchor investor in Red Lobster since 2016, we are excited to confirm our commitment to the business, which reflects our utmost confidence in management and the company's strategy of serving top quality seafood for a great value,” he said in the release. “The Red Lobster brand is strong, with unmatched awareness and millions of loyal guests, and we believe it has tremendous long-term potential. We look forward to capitalizing on that solid base, as well as leveraging Seafood Alliance's restaurant expertise and international relationships, to continue to develop the brand domestically and internationally.”
Golden Gate Capital managing director Josh Olshansky expressed satisfaction his company’s involvement in the chain.
“We have enjoyed a highly successful partnership with Red Lobster and are proud to have worked collaboratively alongside Kim Lopdrup and the management team since 2014, achieving strong returns for our investors,” he said. “With a strong liquidity position, we know the business is in great hands and look forward to cheering the team on under new ownership.”
There are nearly 750 Red Lobster locations worldwide.
According to Nation’s Restaurant News Top 200 data, Red Lobster operated 679 restaurants in the United States at the end of fiscal 2019 with $2.25 billion in sales. In the announcement of the acquisition by Seafood Alliance, it said that 99% of company-owned restaurants are currently open for business and 88% of dining rooms are open.
Darden to Sell Red Lobster for $2.1 Billion
Darden Restaurants Inc. said on Friday it would sell its Red Lobster chain, defying activist investors who opposed the sale because it would sour the chance for a bigger split-up.
The Orlando, Fla, restaurant chain disclosed the $2.1 billion sale to private-equity firm Golden Gate Capital and said the deal wouldn't be subject to a shareholder vote. A majority of shareholders had earlier demanded the company hold a special meeting to let them weigh in before any sale of the chain.
While the company said it believed it had investors support on the sale plan, its shares fell $2.20, or 4.3%, to $48.49 in 4 p.m. trading on Friday.
"Who knew lobsters had middle fingers," Janney Montgomery Scott LLC analyst Mark Kalinowski wrote in a report on Friday, referring to the company's decision to proceed against activists' demands.
Starboard Value LP and Barington Capital Group LP have in recent months argued that separating just Red Lobster from Darden's other seven chains, as the company said it planned to do, wouldn't be enough to transform the casual-dining conglomerate. They want a split that would lump the seafood restaurant with Olive Garden and LongHorn Steakhouse, and to create a third company that would hold Darden's real estate.
Darden will spin off or sell Red Lobster, stop expanding Olive Garden
Orlando, Fla.-based Darden has struggled recently along with the rest of the casual dining sector as price-conscious consumers moved into the cheaper fast-casual tier that includes chains such as Smashburger and Panera.
Darden said the Red Lobster move may take the form of a tax-free spinoff to shareholders or an outright sale.
The split would tentatively be expected to close in the late spring or early summer, but Darden cautioned that “there can be no assurance that any transaction will ultimately occur.”
Red Lobster has 705 locations in the U.S. and Canada. Kim Lopdrup, currently president of Darden, will become chief executive of the seafood dining brand once it’s on its own.
Same-store sales, which strip out the volatility of newly opened or closed units, have slid more than 4% year-over-year for the last three months. Foot traffic compared with the same period in 2012 fell 7.3% last month, 9.9% in October and 5.8% in September.
Darden also said Thursday that it planned to stop opening new Olive Garden locations while also scaling back growth in its LongHorn Steakhouse chain.
And, after arranging to buy the beer-centric Yard House restaurant chain last year, Darden added that it had no other takeover aspirations.
The plan, approved by the Darden board of directors, is expected to slash $100 million annually off the company’s capital spending.
“Our industry is in a period of significant change, with relatively low levels of consumer demand in each of the past several years for restaurants generally, and for casual dining in particular,” Darden Chief Executive Clarence Otis said in a statement.
In late morning trading in New York, Darden stock was down nearly 6%, or $3.11, to $49.81 a share.
On Thursday, Darden said its profit for its fiscal second quarter ended Nov. 24 fell 42% to $19.8 million, or 15 cents a share. Revenue rose 4.6% to $2.05 billion but missed Wall Street expectations.
During the period, Olive Garden sales rose 2.4% to $869 million, largely due to added revenue from 25 new restaurants. But same-store sales declined 0.6%.
LongHorn Steakhouse added 46 new restaurants and managed a same-store sales boost of 5%.
At Red Lobster, however, overall sales for the quarter were down 4.9% to $561 million with a 4.5% decline in same-store sales.
Darden to sell Red Lobster, hold on to Olive Garden
NEW YORK — Darden is setting Red Lobster adrift but betting that it can still turn around Olive Garden’s fortunes.
The company, which is based in Orlando, Fla., said Friday that it would sell its seafood chain and the accompanying real estate to investment firm Golden Gate Capital in a $2.1 billion cash deal. The announcement came despite objections from some shareholders to the plan to separate Red Lobster, which was announced late last year.
Both Olive Garden and Red Lobster have been losing customers in recent years, even as they changed their menus and marketing campaigns to win back business. Part of the problem is the growing popularity of places like Chipotle and Panera, where customers feel they can get the same quality of food without paying as much or waiting for table service.
But Darden CEO Clarence Otis has drawn a distinction between Red Lobster and Olive Garden.
Otis says Red Lobster in particular is increasingly unable to attract the higher-income customers Darden caters to with its more successful chains, which include Longhorn Steakhouse, the Capital Grille and Seasons 52.
Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant in Lakeland, Fla., boasted a menu including half a dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.
As it suffered sales declines more recently, executives blamed a variety of factors, including a refusal among customers to swallow price increases. In 2012, for instance, executives cited a $1 price hike for its “Festival of Shrimp” special in explaining a quarterly decline in sales.
More recently, the company tried to attract a wider array of customers by adding more non-seafood dishes to Red Lobster’s menu. The efforts didn’t take hold.
Darden sees more potential in fixing Olive Garden, which has about 830 locations. The company recently reworked the logo for Italian chain and has been adding lighter menu items, as well as smaller dishes like “crispy risotto bites” that it says reflect eating trends.
Still, affordability is an ongoing issue across the industry and Darden has been slow to address it. At the height of the downturn, for instance, Applebee’s introduced a “2 for $20” deal that proved so popular it ended up becoming a menu fixture.
Activist investor Barington Capital had challenged Darden’s plans to sell Red Lobster, saying the company should separate Olive Garden and Red Lobster as a pair from its other chains, which also include Bahama Breeze, Eddie V’s and Yard House.
Barington said in a statement that Darden’s decision was “unconscionable” given the concerns expressed by shareholders.
Darden noted that its deal is not subject to shareholder approval.
After the transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire debt. The company said it expects the deal to close in its fiscal first quarter of 2015, which is this summer.
Golden Gate Capital made a separate $1.5 billion deal to sell Red Lobster’s real estate to American Realty Capital Properties, then lease it back. Its other investments include California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.
Darden completes $2.1 billion sale of its Red Lobster chain
Red Lobster began a new era Monday, as Orlando-based Darden Restaurants completed its $2.1 billion sale to private equity firm Golden Gate Capital.
The chain is going "back to the basics of being not just the biggest, but the best seafood restaurant," said Kim Lopdrup, Red Lobster's new chief executive officer.
"We're going to have some really spectacular food suitable for a special occasion," Lopdrup said, and
"we're going to have more everyday food at the lower end" as well.
Red Lobster will cut back on dishes without seafood and end much of the deep discounting that took place recently under Darden. Deals such as 30 shrimp for $11.99 will go away, though longtime specials such as Endless Shrimp will remain.
For now, the new Red Lobster is keeping some of its Darden ties. Customers can still use Red Lobster gift cards used at other Darden restaurants and vice versa.
Corporate employees are working in a separate wing of Darden's headquarters until Red Lobster chooses a new corporate address somewhere in the Orlando area.
As Red Lobster moved toward new ownership, Lopdrup said last month it began introducing dishes including fresh swordfish and tuna – "foods people really expect at a good. authentic seafood restaurant."
Still, Lopdrup said he doesn't expect Red Lobster's average check to rise from its current level of between $21 and $21.50. The menu will offer dishes at a number of price levels, he said.
Elevating quality is a strategy Lopdrup pursued during his seven years as the chain's president until 2011. He oversaw Red Lobster as it gave restaurants the feel of a Maine seaside village and introduced wood-fire grilling to move away from its fried-food image.
Still, Red Lobster has had uneven performance for years, and its decline has been particularly steep lately. Sales dropped 5.6 percent to $664 million in the last quarter. The chain's challenges include its age of 46, considered practically elderly in restaurant years.
At the same time, casual dining in general is facing competition from faster, cheaper and trendier competitors.
As sales continued declining and Darden faced pressure from a hedge fund to break up the company, it announced plans in December to sell or spin off Red Lobster. Now another hedge fund has invested in Darden as well. Both funds have protested the sale and said the price was too low.
Darden to sell Red Lobster for $2.1 billion
Darden Restaurants said on Friday it has agreed to sell its Red Lobster casual dining chain and related real estate assets to investment firm Golden Gate Capital for $2.1 billion.
Shares of Darden fell $2.20, or 4.3%, to close at $48.49 on Friday.
The deal lets Darden shed its worst-performing chain to pay off some debt and focus on its flagship Olive Garden chain, which also has been struggling.
Darden will receive net cash proceeds, after tax and transaction costs, of about $1.6 billion for the seafood chain with 700 restaurants in the U.S. and Canada. Orlando-based Darden says it will use $1 billion to pay off debt and use the rest to buy back shares.
Sales at casual dining restaurants have been sluggish, with industry analysts blaming a general lack of innovation and also less appeal for younger consumers. Darden had considered various plans for unload Red Lobster, including a spin-off. Darden also approached real estate buyers about sale-leaseback financing for the business.
Golden Gate, a private equity firm in San Francisco, announced a sale-leaseback deal Friday, to reduce its exposure to Red Lobster's real estate. In the $1.5 billion deal with American Realty Capital Properties for more than 500 Red Lobster restaurants, Golden Gate will sell the land and buildings to ARCP and lease them back.
Darden said it chose Golden Gate because it was an all-cash offer and the deal allows the company to maintain its current dividend of 55 cents per share, or $2.20 per year.
Red Lobster has been the laggard among Darden's chains, which also include LongHorn Steakhouse and The Capital Grille. In the fiscal third quarter ended Feb. 23, Red Lobster's sales at locations open at least a year fell 8.8% from a year ago to $611 million, and visits were down nearly 12%.
In comparison, LongHorn Steakhouse sales rose 0.3%, while Olive Garden reported a 5.4% decline.
The company said that removing Red Lobster from its portfolio frees it to focus on reinvigorating Olive Garden, the company's leading revenue generator.
"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," said Darden CEO Clarence Otis in a statement.
Darden to Sell Red Lobster for $2.1 Billion
Looks like Golden Gate Capital believes that Red Lobster's cheddar biscuits and mediocre seafood is worth some serious dough: According to the press release (below), the investment firm will buy the struggling seafood chain from its parent company Darden Restaurants, Inc. for $2.1 billion. Darden has been looking to "spin off or sell" the chain since late last year. Clarence Otis, Darden's CEO notes that the sale will allow the company to increase its "focus on the Olive Garden brand renaissance program," a.k.a pouring more resources into adding trendy kale dishes to the breadstick-slinging chain's menu. Sadly, the sale also most likely means the recently shuttered hybrid Red Lobster/Olive Gardens won't be making a comeback in the future. Golden Gate does own California Pizza Kitchen, though: combination Red Lobster/CPK, anyone? See the press release:
Darden Announces Sale of Red Lobster to Golden Gate Capital for $2.1 Billion
May 16, 2014
Proceeds to Support Approximate $1.0 Billion Debt Reduction and New Share Repurchase Program of Up to $700 Million
Company to Maintain Current Dividend
Updates Operational Support and Cost Savings Initiatives
ORLANDO, Fla., May 16, 2014 /PRNewswire/ -- Darden Restaurants, Inc. (NYSE: DRI) today announced that it has entered into a definitive agreement to sell its Red Lobster business and certain other related assets and assumed liabilities to Golden Gate Capital for $2.1 billion in cash.
Darden expects to receive net cash proceeds, after tax and transaction costs, of approximately $1.6 billion, of which approximately $1.0 billion will be used to retire outstanding debt. The remaining net proceeds of approximately $500 million to $600 million will be deployed for a new share repurchase program of up to $700 million in fiscal 2015. In addition to strengthening the Company's credit metrics, with the lower debt levels and reduced outstanding share count, Darden expects to maintain its current quarterly dividend of .55 per share, or $2.20 annually.
The agreement announced today is the culmination of a robust process to maximize the value potential of a sale or spin-off of Red Lobster and its real estate assets. As part of this process, the Company and its advisors directly contacted a broad universe of potential financial and strategic buyers to purchase the Red Lobster business. In addition, a significant number of real estate buyers were also contacted to facilitate attractive sale-leaseback financing for the purchase of the Red Lobster business.
In reaching the conclusion that this agreement is in the best interest of all Darden's shareholders, the Darden Board considered, among other things, that:
The all cash consideration provides Darden with immediate and certain value to reduce debt and support its capital return initiatives, including maintaining the Company's dividend, which Darden shareholders have stated is a priority. In the past five fiscal years, Darden has returned nearly $2 billion to shareholders through share repurchases and dividends
The purchase price is approximately 9x Red Lobster's earnings before interest, taxes, depreciation and amortization (EBITDA) for the twelve months ending April 27, 2014
The transaction maximizes the value of the Red Lobster business, while eliminating the risks and uncertainties to Darden and Darden shareholders relating to Red Lobster's turnaround or to separately monetizing the Red Lobster real estate assets
The Company explored numerous separation alternatives for Red Lobster and the value potential of each, including (i) a spin-off of the Red Lobster business, (ii) a sale of the Red Lobster business, (iii) a spin-off of the Red Lobster operating company and a separate sale of its real estate, (iv) retaining the Red Lobster operating company and separating its real estate, and (v) retaining both the Red Lobster operating company and its real estate. The Board concluded that the agreement with Golden Gate Capital is the superior value creating alternative
The agreement is structured to minimize closing risk. Golden Gate Capital has obtained committed debt financing, has fully executed a separate sale-leaseback agreement, and its offer is subject to customary closing conditions and regulatory approvals and
The separation of Red Lobster from Darden will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities.
Chuck Ledsinger, Lead Director of Darden's Board of Directors, said, "Today's announcement is the culmination of a highly competitive process designed to maximize the value of the Red Lobster business and better position Darden for success. The structure of the agreement enables us to capture the value of Red Lobster and establish a market validated valuation of its real estate, while also enabling us to avoid the risks associated with continuing to operate the business in the current challenging environment. As we move forward, we remain committed to building on Darden's leadership and will continue to focus on optimizing all of the Company's assets, including its real estate."
Clarence Otis, Darden's Chairman and CEO, said, "Over the past months, we have had extensive conversations with our shareholders about Darden and the Company's strategic direction. 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. At the same time, it provides Red Lobster and its dedicated employees and leadership team with a partner who has a strong track record in the industry and is as equally dedicated to Red Lobster's success. Our Board and management team are highly focused on enhancing shareholder value, and we believe this transaction is consistent with the efforts underway to deliver on this responsibility."
"Red Lobster is an exceptionally strong brand with an unparalleled market position in seafood casual dining," said Josh Olshansky, Managing Director at Golden Gate Capital. "Red Lobster is exactly the type of company in which we seek to invest given its great brand profile and strong management team. We see significant opportunities for future growth by partnering with Kim Lopdrup and the management team to support the long-term success of Red Lobster."
Operating Support and Direct Operating Costs
As part of its strategic action plan, Darden has significantly reduced operating support costs, which reflects previously announced savings of at least $60 million annually beginning in fiscal year 2015 and additional savings identified during its work to separate Red Lobster. As a result, despite meaningfully lower total revenue following the sale of Red Lobster, Darden does not anticipate an increase in its general and administrative (G&A) expenses as a percentage of sales. G&A expenses are expected to be 5.0% of sales in fiscal 2014 and to remain at that level in fiscal 2015, excluding costs associated with implementation of the Company's strategic action plan and lobster aquaculture research and development project.
In addition, as previously announced, the Company has retained Alvarez & Marsal North America to assist with Darden's operating support cost optimization efforts. Based on work to date, Darden is confident that it can achieve a significant reduction in annualized G&A expenses as a percentage of sales within 12 to 18 months of the closing of the Red Lobster sale (excluding the lobster aquaculture research and development costs).
Darden's work with Alvarez & Marsal is ongoing and is also focused on identifying opportunities for direct operating cost reductions and revenue enhancements.
Darden expects the sale of the Red Lobster business, which was unanimously approved by Darden's Board of Directors, to close in the first fiscal quarter of 2015.
The deal is subject to customary closing conditions and regulatory approvals and is not subject to a shareholder approval condition or a financing condition. Golden Gate Capital has obtained committed debt financing from Deutsche Bank AG, Jefferies and GE Capital, and has fully executed a separate $1.5 billion sale-leaseback agreement with American Realty Capital Properties, Inc., the proceeds of which will be used to support the financing of Golden Gate Capital's purchase of Red Lobster.