Lobster Roll: Darden Sells Red Lobster Seafood Chain for $2.1B

This lobster is getting thrown back in the pool.

Darden Restaurants said on Friday it agreed to sell its Red Lobster seafood chain to private equity firm Golden Gate Capital for $2.1 billion in cash, defying pressure from an activist investor who opposed plans to shed the struggling restaurants.

Hedge fund Starboard Value LP had opposed a sale or spinoff of Red Lobster, saying such a move could destroy as much as $800 million of shareholder value.

Darden, which also owns the Olive Garden chain and other restaurants, said it expects net cash proceeds of about $1.6 billion from the sale, of which about $1 billion would be used to retire debt. The remainder would be used to buy back up to $700 million of shares in fiscal 2015.

Darden, the biggest U.S. operator of full-service restaurants, has been battling competition from "fast-casual" restaurants such as Chipotle Mexican Grill and Panera Bread. Red Lobster, whose sales have fallen in five of the last six quarters, contributed about 31 percent of Darden's total revenue in 2013. Today, there are more than 680 Red Lobster locations in the United States and Canada

Another activist investor, Barington Capital Group LP had pressed Darden to put its more-mature Red Lobster and Olive Garden chains into one company, and its higher-growth chains, including LongHorn Steakhouse and Capital Grille, into another.

Darden, which expects the deal to close in the first quarter of 2015, said it explored several options to separate Red Lobster, but concluded that the Golden Gate deal maximized the value of the business and its real estate assets.

- Reuters