Barington Sends Letter to Independent Directors of Darden, Says Supports Starboard's Efforts, Urging Exploration of Options for Real Estate Assets

Barington Capital Group, L.P., whichrepresents a group of shareholders of Darden Restaurants, Inc. (NYSE: DRI),today announced that it has sent the following letter to the independentdirectors of the Company:     March 26, 2014Michael W. BarnesLeonard L. BerryChristopher J. FraleighVictoria D. HarkerDavid H. HughesCharles A. Ledsinger, Jr.William M. Lewis, Jr.Senator Connie Mack, IIIMichael D. RoseMaria A. SastreWilliam S. Simonc/o Darden Restaurants, Inc.1000 Darden Center DriveOrlando, Florida 32837To the Independent Directors of Darden Restaurants, Inc.:As you know, Barington Capital Group, L.P. represents a group of shareholdersof Darden Restaurants, Inc. ("Darden" or the "Company") who believes that theCompany's common stock is significantly undervalued and would be worthsubstantially more if Clarence Otis, the Company's Chairman and ChiefExecutive Officer, were a more effective steward of Darden's eight brands andextensive real estate holdings.  While we are patient, long-term investors, weare deeply concerned by the rapidly deteriorating financial performance ofDarden under the leadership of Mr. Otis.  In addition, we are dismayed by hisefforts to separate Red Lobster and its valuable real estate from the Companywithout shareholder approval, notwithstanding the fact that this controversialtransaction could potentially diminish shareholder value and appears to us tobe self-serving.In light of the foregoing, we have lost confidence in Mr. Otis's ability torun Darden in the best interest of shareholders.  As the independent directorsof Darden, you are responsible for selecting and overseeing management andensuring that shareholder interests are protected.  We are therefore writingto express the urgent need for you to pause and carefully reassess thesituation at this critical time.We encourage you to follow the advice of Roel Campos, a former Commissioner ofthe Securities and Exchange Commission, given in his August 2006 speechentitled "How to be an Effective Board Member."  In his speech, Mr. Camposemphasizes that independent directors must be more involved in evaluatingcorporate decisions and should have an open mind when confronted byshareholders.  He suggests that boards challenge management to exploreshareholder concerns and recommendations before adopting a "friend or foe"status.   Mr. Campos also recommends that directors not settle for what ismerely acceptable, but should strive for what best benefits a company'sshareholders as a whole.  He states that directors who don't should be takento task for their lackluster conduct.In addition to heeding the advice of Mr. Campos, we also call upon you to takethe following actions:1.  Appoint an Independent Chairman.  Given the existence of potentialconflicts of interest and the heightened need to ensure that shareholderconcerns are being protected, we believe that Mr. Otis should no longer serveas Chairman of the Board.  We recommend that a new independent chairman beimmediately appointed in order to ensure that Board decisions are unbiased andmade in the best interests of the owners of the Company.2. Directly Engage in a Meaningful Dialogue with Shareholders.  We recommendthat the independent directors engage in meaningful dialogue with shareholdersto more fully explore all alternatives to improve long-term shareholdervalue.  Under the circumstances, we believe it is extremely important that theindependent directors communicate directly with shareholders in order toreceive a fair and unbiased understanding of their views and recommendationsthat have not been filtered through senior management. 3. Permit Shareholders to Vote on the Red Lobster Separation Plan.  Wefervently believe that the Darden Board should obtain the approval ofshareholders before proceeding with the controversial separation of RedLobster.  Darden has sought to give the impression that shareholders arewidely supportive of management's plan by repeatedly stating, with carefullychosen words, that its plan reflects "input" from shareholders.[1] Unfortunately, one only has to look at the stock market's reaction to theannouncement of the Red Lobster separation on December 19^th to confirminvestors' disappointment with the plan.As shareholders of Darden, we appreciate and strongly support StarboardValue's efforts to provide the owners of the Company with the right to expresstheir views on the Red Lobster separation.  However, we do not understand whyyou, as the representatives of shareholders on the Darden Board, are requiringStarboard to go through the tedious process of bringing a consent solicitationto call a special meeting in the first place.  In light of the concerns thathave been raised regarding this transaction, we believe that you should causethe Board to promptly announce that it will provide shareholders with theright to vote on the Red Lobster separation –  an announcement that we believethe Board should have made in December.  Providing shareholders with the rightto vote on the Red Lobster separation is not only good corporate governance,it will help minimize the time and resources that the Company and itsshareholders will have to spend to achieve the same outcome through a consentsolicitation.  If Mr. Otis is so confident that shareholders support his plan,he should welcome the opportunity to have his views on such an importanttransaction validated by shareholders.4.  Reconsider the Current Restructuring Plan and Explore Opportunities toUnlock the Value of the Company's Real Estate Assets.  We strongly recommendthat the Company reconsider its views regarding Red Lobster's real estate, aswe believe that Darden should retain these valuable assets rather than includethem as part of any sale or spin-off.  Retaining Red Lobster's real estatewould preserve the opportunity to pursue a variety of other opportunities tounlock the value of these assets in the future, including through theformation of a publicly traded real estate investment trust (REIT).  It wouldalso allow the Company to collect rent from Red Lobster, which we believe is asuperior alternative to including the real estate in the separation.  J.P.Morgan analyst John Ivankoe expresses a similar view in his March 4, 2014analyst report, which estimates that $120 million in rental income per yearcould be generated for the Company and its shareholders by renting the realestate to Red Lobster.[2]We encourage you to independently explore more comprehensive restructuringalternatives that include the separation of Olive Garden and the formation ofa publicly traded REIT.[3]  We also recommend that you permit the Company'sfinancial advisors to engage in discussions with private and public realestate investment companies.  We are confident that there are a number ofinterested parties that would welcome the opportunity to engage in aconstructive dialogue regarding a variety of value-creating real estatesolutions available to Darden.5.  Ensure that Shareholders Receive Full and Fair Disclosure.  As independentdirectors, we believe that it is imperative that you ensure that shareholdersare provided with full and fair disclosure from the Company's seniormanagement team.  We are appalled by recent press reports detailing Darden'sheavy-handed treatment of financial analysts critical of the Company.  Acts of"retribution" have allegedly included preventing such analysts from askingquestions on earnings conference calls and refusing to give such analysts andtheir clients access to management or invitations to Company-sponsoredconferences.[4]  We also disapprove of the recent decision by Darden to cancelthe Company's 2014 Analyst and Investor Conference and replace it withprivate, "invitation-only" meetings with analysts, which appears to us torepresent an attempt by management to control and obfuscate the flow ofinformation concerning its restructuring plan.  This type of behavior isunacceptable to us and, in our opinion, is not indicative of a management teamthat can be relied upon to run a public company in the best interests ofshareholders.6. Improve the Company's Corporate Governance.  It is our belief that theBoard needs to improve Darden's corporate governance and do a better job ofaligning management and shareholder interests.  This is not only evident to usfrom the restructuring plan that the Board approved, but from the Company'shorrific corporate governance rating that was recently issued by InstitutionalShareholder Services.[5]  We were also shocked to learn that just days afterthe Company issued its disappointing financial results for the third quarter,the Board voted to update Darden's Bylaws to help protect their jobs by makingit more burdensome for shareholders to nominate new directors.  One wouldexpect that that if the Board was truly shareholder focused, it would find itunnecessary to increase Darden's defenses, particularly at a time when it isimplementing a restructuring plan that Mr. Otis claims will enhanceshareholder value.7. Consider Beginning a Search for a New Chief Executive Officer.  Under Mr.Otis's leadership, the Company has underperformed virtually every financialbenchmark over the past one, two, three, four and five-year periods. Shareholders have been given little reason to believe that that this willchange any time soon if Mr. Otis remains Chairman and Chief ExecutiveOfficer.  As you know, on Friday the Company announced same-store-salesdeclines of -5.4% at Olive Garden and -8.8% at Red Lobster for the thirdquarter of fiscal 2014.  This comes on top of same-store-sales declines of-4.1% at Olive Garden and -6.6% at Red Lobster for the third quarter of fiscal2013.  In fact, same-store-sales have declined at Olive Garden – Darden'slargest brand accounting for approximately 42% of the Company's revenue – insix out of the last eight quarters, and at Red Lobster – Darden's secondlargest brand accounting for approximately 30% of the Company's revenue – inseven out of the last eight quarters. As the financial performance of Darden continues to decline, we believe thatMr. Otis is not only failing to pursue opportunities to create strongindependent operating companies and unlock the value of Darden's significantreal estate holdings, he is proceeding with a restructuring plan that couldpotentially destroy the opportunity to fully unlock this value in the future. We are puzzled by Mr. Otis's continued resistance to more broadly implementingthe proven strategies we have recommended that have improved long-termshareholder value at a number of other restaurant companies.  Given theextensive list of benefits that Darden has stated Red Lobster will achievefrom a separation, one would expect that a CEO truly focused on doing what isbest for shareholders would want the same for Darden's seven other brands.It is our belief that the rationale Mr. Otis has given to defend his decisionnot to separate Darden's remaining brands is spurious.  During Darden's March3^rd conference call, Morgan Stanley analyst John Glass asked why a spin offcreates value for Red Lobster, but not for the Specialty Restaurant Group.  Inresponse, Mr. Otis stated:  "From a strategic perspective, we believe that all of our casual diningbrands, with the exception of Red Lobster, really have a great deal in commonas they move forward in terms of the things they need to do to protect theircore.  So strategically there's a lot of comparability there that is not atRed Lobster … And our Specialty Restaurant Group is comprised mostly of casualdining brands that have a lot in common with LongHorn and Olive Garden."We believe that Mr. Otis is being disingenuous, given the significant andobvious differences that exist between brands such as The Capital Grille andOlive Garden.  These brands have vastly different target customers, averagecheck sizes and alcohol sales, as well as significantly different needs interms of marketing, menu innovation, food sourcing and supply chainrequirements (just to name a few).Clearly, keeping Darden's seven remaining brands together is beneficial to Mr.Otis for a variety of reasons.  Among other things, it allows him to continueto run Darden in the same fashion as before, with the further benefit that hispoorest performing brand would be removed from the portfolio.  We alsorecognize that including the real estate in a sale benefits Mr. Otis in thatit will obscure the value that is received for the brand alone, which hassignificantly declined under his stewardship.It therefore appears to us that Mr. Otis's views regarding the Red Lobsterseparation support the adage "where you stand [on an issue] depends on whereyou sit."  Mr. Otis, who led Darden in the acquisition of five brands over thepast six years or so, sits in an office in Darden's spectacular, $152 millioncorporate headquarters located on a 57-acre campus in Orlando.  This facilitywas designed and built under Mr. Otis's leadership to run the multi-brandportfolio he assembled in a centralized fashion.  Given that Mr. Otis'sbackground in finance and investment banking leaves him more qualified to runa restaurant conglomerate than an individual restaurant brand, some havequestioned whether his views may be more influenced by his personal desire tomaintain his position, pay and perquisites than a concern for what isultimately in the best interest of shareholders.[6]  We have long questioned why the Board did not select a person with strongeroperating experience in the restaurant industry to run Darden.  While we havepatiently tried to work with Mr. Otis, it is clear to us that the Company hasnot been able to effectively compete with Darden's better managed peers underhis leadership.  We therefore think it is time to for the Board to considerwhether it should begin to look for a new CEO – someone with exceptionaloperating and management skills in the restaurant industry, who has thebackground and experience to run Darden no matter how it may be restructuredin the future.*   *   *   *   *In closing, we believe that there is clearly a need for greater leadership atDarden by its independent directors, and we encourage you to be significantlymore proactive.  As stated by Mr. Campos: "Directors must ask the tough questions and get involved.  And mostimportantly, when something that should raise an eyebrow comes to theattention of a director, that director must follow up and investigate.  Thedirector cannot ignore red flags, or even pink ones.  In fulfilling the roleof an effective director, an individual must take a proactive approach, goingbeyond the minimum legal obligations…. Frankly, to be an effective boardmember, directors who are supposed to be independent must have the wherewithalto be an active presence on management's radar and to act independently in theinterest of the shareholder.  Passivity is not an option."Needless to say, the status quo at Darden is unacceptable.  Nevertheless, weremain convinced that Darden can significantly improve its long-term financialperformance if the right strategic and operating decisions are implemented bya well-qualified management team.  We are therefore looking to you, as theindependent directors of Darden, to take decisive action at this critical timefor the Company – it is your responsibility to ensure that the rightmanagement team is in place and that it is focused on making decisions thatare in the best interests of shareholders. Sincerely yours,/s/ James A. MitarotondaJames A. Mitarotonda