Barington Capital escalates activist stance towards Darden with 84-page report


2.8% shareholder Barington Capital escalates its activist posture towards Darden Restaurants (DRI +1.3%), issuing an 84-page presentation stating its belief that  Darden's "corporate centralization and resulting internal complexity have contributed to the Company's declining financial performance and eroding competitive position."

Barington believes $71-$80/share in value could be unlocked if the company is split into "Darden-Mature" (Olive Garden and Red Lobster) and "Darden Higher-Growth" (Bahama Breeze, Longhorne Steakhouse, Seasons 32, Eddie V's, Yard House, and The Capital Grille) and the real estate assets, which Barington believes are valued at $4B, are divested. The respective companies would then be run more in-line with value and growth companies respectively, Barington recommends. The points have been a general theme of Barington's agitation in the past several months.

And although Barington is encouraged by Darden's proposed $50M in cost cutting efforts, the fund thinks the restaurateur "has numerous actionable avenues to lower operating expenses by up to $100M-$150M."

Barington has hired a proxy solicitation firm and Houlihan Lokey to review its recommendations in a sign that the fund may be willing to go to bat to push through its recommendations.

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Comments (4)
  • chopchop0
    , contributor
    Comments (5268) | Send Message
     
    Seasons 52, not "Seasons 32"
    17 Dec 2013, 11:08 AM Reply Like
  • COBeeMan
    , contributor
    Comments (2979) | Send Message
     
    How does splitting and duplicating a corporate structure into two companies "unlock" any value? Why not just have them structured as subsidiaries or divisions of the existing corporation (if they aren't already) to minimize corporate overhead?
    17 Dec 2013, 01:02 PM Reply Like
  • The Slammer
    , contributor
    Comments (48) | Send Message
     
    COBM,
    Good question, my best answer would be management can focus on either the "mature" brands Olive Garden and Red Lobster, and another set of management on the high growth brands. As a customer i have been to several Darden restaurants, the high growth category is expanding, the mature brands need to re-work menu, focus on quality. Apologies for the rambling answer, but with 2 companies management can narrow their focus. Kind of like Kraft and Conoco split ups.

     

    Long DRI, KRFT, MDLZ
    17 Dec 2013, 11:59 PM Reply Like
  • NahP
    , contributor
    Comments (6) | Send Message
     
    In theory, the split would create separate management teams that have the appropriate skill set to run each business. I buy the argument that decentralization would be beneficial in refocusing the many disparate brands under the present structure (despite any economies of scale that may be lost). I also believe that separate management teams would allow greater autonomy in executing the proper marketing and promotional strategies that the different brands would require.

     

    From an analyst's perspective, separate reporting structures would give the investors more clarity in their valuations. The same argument has been made about GE for years. In that case, how many analysts out there can be experts in financial services, aviation, plastics, healthcare, and real estate at the same time and then be expected to keep up with each industry? And then parse out each business with limited information while being forced to make assumptions on overhead, cost of capital, synergies blah blah? What ends up happening is the company gets tagged with a multiple and everyone calls it a day.

     

    Darden is not so complex but you see my point...split reporting allows for great granularity and gives the experts what they need to form a better opinion. Although that doesn't necessarily mean they'll like what they see...
    18 Dec 2013, 09:31 AM Reply Like
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