Starboard Value LP (together with its
affiliates, "Starboard"), one of the largest shareholders of Darden
Restaurants, Inc. ("Darden" or the "Company") DRI, with ownership of
approximately 5.5% of the outstanding common stock of the Company, today
announced it has delivered a letter to Darden's Board of Directors (the
"Board") following statements made last week by Matthew Stroud, Darden's VP,
Investor Relations, to a group of shareholders attending a lunch in New York
City, that the Company is on a timetable to complete a sale or spin-off of Red
Lobster in June or July. Mr. Stroud also informed the group of shareholders
that the Company believes it can delay calling the Special Meeting as far as
60 days from the date of certification of the written requests, and that the
Company is not required to hold the Special Meeting thereafter for an
additional 60 days. Mr. Stroud's statement is inconsistent with Florida law,
which clearly provides that the initial 60 days to call the Special Meeting
starts when the written requests are delivered, not certified. Starboard is
disturbed that Darden seems more intent on discussing how it can delay the
Special Meeting rather than taking the steps required to hold the Special
Meeting.
Mr. Stroud's statements have heightened Starboard's concerns that the Company
may now be seeking to hurry through a sale of Red Lobster before holding the
Special Meeting. Starboard believes it would be a huge mistake for the Board
to rush an irreversible and potentially value-destructive Red Lobster sale at
this time, and is urging the Board to either immediately call the Special
Meeting or agree to make any Red Lobster transaction subject to shareholder
approval.
The full text of the letter to the Board follows:
May 14, 2014
Darden Restaurants, Inc.
1000 Darden Center Drive
Orlando, FL 32837
Attn: Board of Directors
Dear Board of Directors:
On April 22, 2014, Starboard delivered written requests to Darden Restaurants,
Inc. ("Darden" or the "Company") to call a special meeting of shareholders
(the "Special Meeting") from the holders of more than 55% of the Company's
outstanding shares. On May 6, 2014, the independent inspector of elections,
IVS Associates, Inc. ("IVS"), issued its final, certified voting report
confirming that Starboard delivered valid written requests to call the Special
Meeting from the holders of approximately 57% of the Company's outstanding
shares.
Over the past several months, we have made absolutely clear all the reasons
that a sale or spin-off of Red Lobster (the "Red Lobster Separation") is the
wrong separation, at the wrong time, for the wrong reasons. Recent statements
by Matthew Stroud, VP, Investor Relations, have heightened our already serious
concerns that Darden may be focused on a quick sale of Red Lobster prior to
holding the Special Meeting. While we can see how a Red Lobster Separation
could be convenient and beneficial for management, this could be the absolute
worst time to be selling Red Lobster:
o same-store-sales are down, food costs are up, and the brand is in
desperate need of a turnaround;
o significant probable tax leakage in a sale makes it far less attractive
than other alternatives;
o separating Red Lobster with its real estate is likely to trap significant
real estate value and may permanently impair the value of Darden's real
estate portfolio;
o selling the real estate owned by Red Lobster concurrently with a Red
Lobster sale is inefficient due to unnecessary tax leakage and a lost
opportunity to gain significant value by executing a tax-free spin of
Darden's entire real estate portfolio or a tax-free merger involving
Darden's entire real estate portfolio and a REIT; and
o by completing the Red Lobster Separation first, Darden may be
significantly increasing the risk of meaningful debt breakage costs in the
future that may have been avoidable with more intelligent structuring.
Moreover, since a Red Lobster Separation would be irreversible, it is all the
more concerning that you are attempting to rush it through before shareholders
are allowed to formally express their views, as they have validly demanded
under Florida law.
It has already been three weeks since we delivered the written requests to
call the Special Meeting. Substantial time has already lapsed, but there is
still time for the Company to call and hold the Special Meeting prior to
completing a Red Lobster Separation. If the Board were to act now on the
Special Meeting request, there is no reason that the Special Meeting could not
be held in late June or early July. We remind you that a substantial majority
of the Company's shareholder base has unequivocally demonstrated that
shareholders demand the opportunity to have their voices heard on the Red
Lobster Separation before it is too late and substantial value is potentially
destroyed. Unfortunately, the Board continues to show a blatant disregard for
the views and concerns raised by its shareholders.
As you know, approximately 20% of the Company's outstanding shares are held by
retail investors (who generally have extremely low vote totals), approximately
10% of the outstanding shares are out on loan and are typically not voted, and
approximately 3% of the outstanding shares are held by management and the
Board. Based on the vote results from last year's 2013 Annual Meeting,
Darden's voting participation on non-routine items (items where a broker
cannot place a vote on a client's behalf) was 72% of the outstanding shares.
Therefore, the 57% of the outstanding shares that consented represent an
enormous percentage of the estimated 72% of the outstanding shares that would
be expected to vote at Darden's meetings. This is an extremely strong mandate
from your shareholder base for the calling of the Special Meeting to vote on
the following proposal:
to approve a non-binding resolution urging the Board of Directors of Darden
not to approve any agreement or proposed transaction involving a Red Lobster
separation or spin-off prior to the 2014 Annual Meeting of Shareholders
unless such agreement or transaction would require shareholder approval.
If the Board continues to ignore the will of the shareholders to call the
Special Meeting in a timely manner and is stubbornly delaying the calling of
the Special Meeting in order to rush a sale of Red Lobster, then the Board
should promise the shareholders, consistent with their consents, that the
Board will make any transaction involving Red Lobster subject to shareholder
approval. Your unwillingness to date to either call the Special Meeting or
commit to requiring shareholder approval of a Red Lobster Separation increases
the skepticism around your intentions for Red Lobster and raises serious
doubts as to whether you are representing the best interests of your
shareholders.
To further illustrate the point that the Company continues to disrespect its
shareholder base, we understand that the Company has been misleading
shareholders all along regarding the timing requirements of the Special
Meeting. Even before we delivered the written requests, Darden was
incorrectly informing shareholders that the Company is not permitted to call
the Special Meeting for 60 days following the delivery of the demand, and
claiming that there is a built-in "cooling off" period under the Florida
Business Corporations Act (the "FBCA"). The significance of the 60 days is
not as a "cooling off" period, or a time for Darden to seek revocations, as
Darden has told shareholders, but rather that, under the FBCA, if the Company
has not called the Special Meeting within 60 days of the date that Starboard
delivered the demand, then a court can intervene to set the time and place of
the Special Meeting upon application of any requesting shareholder. It is
disturbing that Darden is even discussing a pushed out timetable for the
Special Meeting that could cause a shareholder to have to sue to compel a
court to call the Special Meeting.
Making matters worse, Mr. Stroud stated to Darden shareholders on Friday that
the Company views the 60-day clock as starting on the date that the consents
were certified by IVS. The FBCA is clear that the 60-day clock starts when
the demand was delivered, not certified. The Board is playing fast and loose
with Florida law and the corporate machinery to serve its own interests while
ignoring the clear will of shareholders.
It is time for Darden to stop making a mockery of corporate governance.
Instead of misleading shareholders and discussing the latest possible date the
Company can hold the Special Meeting, you should be respecting the clear will
of your shareholders by either immediately calling the Special Meeting or
publicly confirming that any Red Lobster transaction will be subject to
shareholder approval.
We will view any unsatisfactory response as a clear failure of corporate
governance for which the current Board must be held accountable. As you know,
we are presently contemplating the nomination of a slate of directors for
election at the 2014 Annual Meeting. The current Board's shortcomings to
date, both operationally and from a governance standpoint, demonstrate that a
significant level of Board change is required at
Darden.
Best Regards,
Jeffrey C. Smith
Managing Member
Starboard Value LP
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