Darden Restaurants claws out of Red Lobster

By Frederick H. Lowe
Contributing Writer

(Special from The North Star News & Analysis) – Darden Restaurants Inc., which is led by Clarence Otis Jr. announced on Friday that it has signed a definitive agreement to sell its Red Lobster business for $2.1 billion in cash to Golden Gate Capital. San Francisco-based Golden Gate, a private-equity fund, will also assume Red Lobster’s debt.

After taxes, Darden, which is based in Orlando, Fla., expects to receive approximately $1.6 billion and of that amount $1 billion will be used to retire the company’s outstanding debt.

The balance of the funds — $500 million to $600 million — will be spent to repurchase the company’s outstanding shares. Darden expects to spend up to $700 million on a share repurchase plan in 2015.

The purchase price is nine times Red Lobster’s earnings before interest, taxes, depreciation and amortization for the 12 months ending April 27, 2014.

Red Lobster, which specializes in seafood, is based in San Francisco. According to Darden Restaurant’s 2013 annual report, Red Lobster reported annual sales of $2.62 billion, down 1.7 percent from 2012. The chain operates 705 restaurants in the United States, United Arab Emirates, Canada, Japan, Qatar, Saudi Arabi and Brazil.

In his report to shareholders, Otis, chairman and CEO of Darden Restaurants, said sales have continued to decline at Red Lobster because of changing dining habits. He added that the company’s board of directors has been studying what to do with Red Lobster for the past several months.

“We have had extensive conversations with our shareholders about Darden and the company’s strategic direction,” Otis said. “By enabling us to bolster the company’s financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the company’s dividends and regain momentum at Olive Garden.”

Josh Olshansky, managing director of Golden Gate Capital, said, “Red Lobster is an exceptionally strong brand with an unparalleled market position in seafood casual dining.”

The deal is scheduled to close in first quarter of 2015. Darden is the world’s largest full-service restaurant company with 2,100 restaurants and more than $8.6 billion in annual sales in 2013, up 6.9 percent compared to 2012.

This article originally published in the May 26, 2014 print edition of The Louisiana Weekly newspaper.