Olive Garden dispute heats up
Starboard Value LP, the activist investor battling the owner of Olive Garden, has a new ally in its fight to revamp the Italian restaurant chain.
Proxy advisor Glass Lewis & Co. has backed all 12 of its nominees for Darden Restaurants Inc.’s board and supported Starboard’s turnaround plan for the company, which owns Olive Garden and LongHorn Steakhouse. Separately Thursday, investor-advisory firm Egan-Jones Ratings Co. recommended that shareholders vote in favour of Darden’s nominees.
Earlier this month, Starboard released an almost 300-page proposal for how to streamline Darden’s operations and boost earnings by as much as US$326-million. The report included detailed advice for the Olive Garden chain, such as putting salt in the pasta water, being less generous with breadsticks and selling more wine to customers.
Glass Lewis endorsed the approach, according to a report published by the San Francisco-based company.
“Starboard has identified valid areas of concern, from a performance, operations and governance perspective, and outlined a realistic plan to improve the company’s performance,” Glass Lewis said. Starboard “has nominated several director candidates who possess relevant experience and who are capable of overseeing a turnaround,” it said.
In contrast, Egan-Jones Thursday said that a turnover of the board, as favoured by Starboard, would have “an extremely disruptive effect upon the company’s implementation of its current plans and search for a new CEO,” according to a statement released by Darden.
Darden drew Starboard’s ire when it sold off the Red Lobster chain to Golden Gate Capital this year and ignored the investor’s requests to split off its real estate. Starboard announced its board slate in May, saying management had shown “contempt for shareholder interests.”
In an attempt to stave off Starboard’s proxy fight, Darden submitted a board slate with eight new directors — including four of Starboard’s picks. Chief executive Clarence Otis, who had been criticized by Starboard, also agreed to step down later this year. The concessions didn’t placate Starboard, which owns a stake of about 8.8%.
Darden, based in Orlando, Fla., responded Thursday by pointing out that the Glass Lewis report highlights some of the progress it’s already making. The report also noted that many objectives in Darden’s own plan to turn around Olive Garden are included in Starboard’s proposal and that both sides agree the brand should return to basics.
“We have met with many Darden shareholders who support new perspectives but also recognize the risks of the total turnover and control that Starboard is seeking,” the restaurant company said in an emailed statement. “Darden’s slate of director nominees is the only slate that provides the benefit and balance of new perspectives as well as continuity of experience.”