Darden Announces Sale of Red Lobster to Golden Gate Capital for $2.1 Billion

Darden Announces Sale of Red Lobster to Golden Gate Capital for $2.1 Billion

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 $0.55 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.

Special Meeting

Although the closing of this transaction is not contingent on the results of a Special Meeting, the Company intends to file a preliminary proxy statement later this month with the Securities and Exchange Commission with respect to the requested Special Meeting of Shareholders and to convene a Special Meeting as promptly as practicable.


Goldman, Sachs & Co. is serving as Darden’s exclusive financial advisor on the sale of Red Lobster and also as financial advisor to Darden’s Board of Directors.  Latham & Watkins is serving as its legal counsel to Darden on the transaction.  Morgan Stanley is serving as financial advisor working exclusively at the direction of Darden’s Board of Directors, and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Darden’s Board of Directors.

Deutsche Bank Securities Inc. and Jefferies LLC are serving as financial advisors to Golden Gate Capital in connection with the transaction.  Deutsche Bank Securities Inc., GE Capital, and Jefferies Finance LLC are providing debt commitments for the acquisition.

Slide Presentation

Darden has published a slide presentation in connection with today’s announcement.  A copy of the slides can be accessed at www.darden.com and clicking on the “Investors” tab.