Shareholder calls for Darden to spin off Red Lobster

October 21, 2013, 4:20 pm

Investment group Barrington Capital, representing more than 2% of Darden’s shareholders, has released changes it suggested to the restaurant firm, reports Orlando Sentinel.

While not necessarily agreeing with the proposals, analysts have said major changes may be needed, said the news website.

On Thursday, Barington released a letter it wrote to Darden detailing its suggestions, including a spinoff of Olive Garden and Red Lobster. The New York hedge fund also called for Darden to cut at least $100 million a year in expenses, and consider a sale and lease-back of some restaurant property.

Barington doesn’t own enough of Darden to force change, but it could bring persistent pressure. Hedgeye Risk Management analyst Howard Penney predicted Darden could attract another “louder and bigger” activist investor.

Darden last month reported quarterly profit of $70.3m, 38% lower compared with a year earlier. The company cut 85 corporate positions and said it would make other spending cuts to save $50m a year.

Some industry watchers say Darden should stop building new Olive Gardens and Red Lobsters, at least for a few years. J.P. Morgan analyst John Ivankoe said he thinks Darden could close 20% of its more than 700 Red Lobsters.

Read the full story here.

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