Darden Restaurants, Inc. DRI today issued the following statement regarding a September 25, 2014
report by Institutional Shareholder Services ("ISS"). The report relates to
the election of directors to Darden's Board of Directors at the Company's 2014
Annual Meeting of Shareholders to be held on October 10, 2014.
We believe that shareholders should be alarmed that ISS has recommended
wholesale change with virtually NO regard in its report to the positive
improvement underway in Darden's operations, the risks associated with the
full Board turnover that Starboard Value L.P. and its affiliates ("Starboard")
is seeking, and the meaningful enhancements made to Darden's leadership
structure, including the search for a new Chief Executive Officer and the
Company's new slate of independent director nominees, which would result in
eight of 12 directors new this year. Instead, the ISS report places large
reliance on mistaken perceptions regarding the Red Lobster transaction that
are inconsistent with the facts.
The sale of Red Lobster was the culmination of a robust and deliberate review
process that began in early 2013. This process was designed to enable Darden
to maximize value and minimize risks associated with continuing to own the
business, including risks from the brand's ongoing deterioration and uncertain
pathway for recovery. The sale is also consistent with Darden's strategy of
increasing its focus on its Olive Garden® Brand Renaissance. The $2.1 billion
all cash consideration from the Red Lobster sale provided Darden with
immediate and certain value to reduce debt and support our capital return
initiatives, including a significant share repurchase and maintaining the
Company's annual dividend at $2.20 per share. The flawed analysis upon which
ISS relies results in $107 million of incorrect costs that were never incurred
and undervalues the amount of the deal consideration attributable to Red
Lobster's operating business and related assets by nearly half a billion
dollars, as detailed in the presentation and associated press release issued
by Darden on August 4, 2014.
Contrary to ISS's view, we have heard from many shareholders who do not
support ceding total control of the Board to Starboard and its nominees. While
these shareholders support new perspectives, they also recognize the risks of
the full board turnover that Starboard is seeking – risks that ISS appears to
have ignored. Darden's slate of director nominees is the only slate that
provides the benefit and balance of new perspectives as well as continuity of
experience and insights with four new independent nominees unaffiliated with
the Company or Starboard, four highly qualified continuing independent
nominees, and four seats to be filled by Starboard – resulting in eight of 12
new independent directors this year.
There are critical and value-impacting decisions facing Darden – including the
selection of Darden's next Chief Executive Officer and strategic decisions
regarding our brands, cost structure and operating initiatives. We believe
these decisions are best made by an independent, balanced Board that is
comprised of directors who are best-positioned to represent the interests of
ALL Darden shareholders. Indeed, we believe it would be a mistake to entrust
these decisions to the handpicked nominees of one minority shareholder,
Starboard. In doing so, the ISS recommendation would replace the robust
boardroom debate required of sound corporate governance and enabled by
independent thinkers with Starboard's 12 director nominees who are already
committed to following Starboard's point of view.
In determining their vote, we urge all Darden shareholders to consider the
following:
o We are making significant progress on our operating priorities, including
the Olive Garden Brand Renaissance. In a "people facing" business where
relationships matter, too much turnover, particularly at the leadership
level, can be distracting and disruptive. Darden has already announced a
search for a new Chief Executive Officer. We do not believe it is in
shareholders' best interests to elect an entirely new Board, which could
impede initiatives that are largely underway and delivering results.
o We believe Darden's four continuing independent directors provide critical
knowledge and insights about the Company, the industry and what has made
Darden's brands successful over time and through various economic cycles.
This institutional knowledge cannot be replaced or replicated by any of
Starboard's nominees; we believe that removing all of Darden's continuing
nominees, and the knowledge they provide, would hinder the progress we are
making and successful decision making going forward.
o New, independent perspectives are valuable. Darden's slate contemplates
four new independent nominees unaffiliated with the Company or Starboard
as well as four seats to be filled by candidates proposed by Starboard.
All of Darden's director nominees share the common goal of enhancing
shareholder value and are prepared to work collaboratively with the four
Starboard nominees to consider all alternatives to achieve this
objective.
In contrast, in addition to what we believe are significant experience gaps in
the Starboard slate, four of Starboard's nominees have been nominated and
added to at least one other Board through Starboard (Peter Feld, James
Fogarty, Cynthia Jamison and Jeff Smith), and several nominees have previously
led their own activism campaigns or served as dissident director candidates
(Betsy Atkins, Brad Blum, Peter Feld, William Lenehan and Jeff Smith). In
addition, as previously detailed in a prior press release, a review of the
public record shows a web of numerous other connections that Starboard's
director nominees have to Starboard, to Jeff Smith and to each other, and
Starboard's nominees have already publicly pre-committed themselves to
following Starboard's plan. These factors raise concerns to us about the
independence of Starboard's nominees and their willingness to serve the best
interests of ALL Darden shareholders.
We do not believe Starboard's director nominees are best suited to take total
control of Darden's Board of Directors.
In another contest for control, even ISS has recognized the value of a truly
independent dissident slate comprised solely of nominees who have no prior
affiliation with the dissident and are "independent of the large dissident
shareholder…so that the proposed change in control of the board is not a de
facto shift of control to that shareholder itself. The willingness of that
shareholder to keep any of its employees out of the nomination, moreover,
strongly suggests an appropriate attentiveness on [the dissident's] part to
the independent fiduciary role of the board, and a sharp focus on optimizing
the chances for the company's success under the reconstituted board."^1
o While ISS suggests that Starboard will add back two of Darden's current
directors, we do not believe that two isolated voices – against twelve
nominees already predisposed and pre-committed to one shareholder's point
of view – will provide for the meaningful, independent and robust
boardroom debate and direction that is required to drive sustainable value
creation, particularly given the strategic decisions that Darden faces.
Further, we see no reason for shareholders to entrust Starboard and its
nominees to make these selections; we believe shareholders should decide
for themselves which directors should be elected.
o Darden is a global company with a complex business that includes unique
supply chain requirements, multiple consumer segments, specific brand
needs and 150,000 employees. It requires long-term vision and long-term
strategic planning to drive sustainable value creation. Darden's director
nominees have experience and proven records directly overseeing complex
operations similar to Darden's, guiding successful strategic execution,
operational turnarounds and asset optimization initiatives.
o By attempting to replace all 12 members of Darden's Board with its own
preferred nominees, Starboard is seeking effective control of the
Company. We do not believe that it is in the interests of all
shareholders for a single minority shareholder to control 86% of the
Board's representation when it holds 8.8% of the shares^2.
Darden shareholders are reminded that their vote is important, no matter how
many or how few shares they own. The Darden Board urges shareholders to vote
ONLY on the BLUE proxy card "FOR ALL" of Darden's highly qualified,
experienced and independent director nominees: Michael W. Barnes, Gregory L.
Burns, Jeffrey H. Fox, Christopher J. Fraleigh, Steve Odland, Michael D. Rose,
Maria A. Sastre and Enrique Silva. Shareholders may vote by mail, phone or
internet following the instructions on the BLUE proxy card.
CAUTION: Any vote on the white card could result in the full turnover of
Darden's Board. Darden urges shareholders – DO NOT SIGN OR RETURN ANY WHITE
CARD. SIMPLY DISCARD IT.
Innisfree M&A Incorporated is serving as the Company's proxy solicitor and can
be contacted toll-free at (877) 825-8631.
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