Darden Restaurants To Sell Red Lobster Business To Golden Gate Capital For $2.1 Billion

Shares of both Darden Restaurants DRI and American Realty Capital Properties ARCP are seeing some activity in Friday's premarket amid news the former will sell its Red Lobster unit and the latter will purchase the unit's real estate assets. Darden Restaurants said it has agreed to sell its Red Lobster seafood restaurants business to Golden Gate Capital for $2.1 billion in cash. In a separate statement American Realty, who is funding the deal for Golden Gate Capital in a fully executed sale-leaseback agreement, said it has entered into an about $1.5 billion sale-leaseback deal for over 500 Red Lobster restaurant properties. Darden expects to receive net cash proceeds, after tax and transaction costs, of about $1.6 billion, of which about $1 billion would be used to retire outstanding debt. The remainder of the net proceeds would be used for a new share repurchase program of up to $700 million of shares in fiscal 2015. “We believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the Company's dividend and regain momentum at Olive Garden,” Darden's Chairman and CEO Clarence Otis said. This deal will be consummated in conjunction with Golden Gate Capital's deal of Red Lobster from Darden Restaurants, American Realty said. The $1.5 billion deal price for American Realty represents a GAAP cap rate of 9.9 percent and a cash cap rate of 7.9 percent and about 93.5 percent of portfolio's leases will be have a 25-year initial term and about 6.5 percent, constituting leasehold assets, will have a weighted average 18.7-year initial term. American Realty's President, David Kay said, “When consummated, the Red Lobster transaction will allow us to achieve the high end of our acquisition guidance which we set at $3.0 billion for the entire year of 2014.” Shares of Darden were slightly down at $50.50 in pre-market trade after closing at $50.69 on the New York Stock Exchange on Thursday while American Realty Capital Properties shares had closed at $13.22 on the NASDAQ.