Hedge fund wants new Darden board
Red Lobster sale sparks ire.
Hedge fund Starboard Value declared war on Darden Restaurants’ leadership Thursday, saying it will try to oust the company’s entire board of directors.
The move follows last week’s announcement that Darden has agreed to sell Red Lobster to private-equity firm Golden Gate Capital. The deal happened over the objections of Starboard, which said the sale will destroy shareholder value.
“For far too long, Darden shareholders have suffered mightily under the failed leadership of a board that has blatantly disregarded the best interest of shareholders,” Starboard said in a letter to the company.
Starboard said it would review documents to see if Darden can cancel the Red Lobster sale, set to close this summer. But it appeared resigned to the transaction and said it will now turn its focus to replacing board members.
Starboard also said Thursday that it has increased its stake in Darden to 6.2 percent. It previously held about 5.5 percent of company stock.
Darden issued a statement defending its directors, who include former U.S. Sen. Connie Mack and Bill Simon, presidentandchief executive officer of Walmart’s U.S. division. Darden said they are “proven leaders in their respective fields with experience and expertise relevant to the needs of the business and the company’s strategies.”
Darden also accused Starboard of trying to take “effective control’’ of the company, despite its relatively small shareholder stake.
Starboard’s 12 board candidates include Brad Blum, the former president of Darden’s Olive Garden chain; TGI Friday’s founder Alan Stillman; and Chuck Sonsteby, a former Brinker International executive.
A big change in Darden’s directors could doom Chief Executive Officer Clarence Otis, who answers to the board.
Starboard’s letter quoted an excerpt from a note by Buckingham Research saying the Red Lobster sale “will likely result in meaningful changes at the board level and among senior management.”
Erik Gordon, a University of Michigan business and law professor who advises boards on good-governance practices, was more blunt. “The CEO is toast,” he said.
Shareholders would vote on the board of directors at the company’s next annual meeting. Those meetings are usually held in September, although Darden changed its by laws recently and now can delay it indefinitely.
Nominating an entirely newboard is rare. Typically, activist investment firms try to wrest control of just a few board seats. The move “is an unusual thing, but it reflects an unusual situation here,” Gordon said.
Darden was seen by analysts as being particularly defiant by pushing through a Red Lobster sale despite investors’ call for a special meeting to discuss the matter. Starboard persuaded holders of 57 percent of Darden’s stock to vote in April for the meeting.
Unless Darden can terminate the sale, Starboard plans to withdraw its request for the meeting, saying there is no point to holding it now.
Starboard’s other nominees include its CEO Jeffrey Smith; Betsy Atkins, who cofounded Ascend Communications; Margaret Shan Atkins, who has served on the board of Tim Horton’s since 2007; Jean Birch, former president of IHOP Restaurants; Peter Feld, a managing member at Starboard Value; James Fogarty, chief executive officer and director of Orchard Brands; Cynthia Jamison, chairman of the board of Tractor Supply Co.; William Lenehan, who works in the real estate industry; and Lionel Nowell, who was senior vice president of Pepsi Co for eight years.
Darden’s stock rose 1.7 percent Thursday, closing at $49.51.