Darden Restaurants, Inc. (NYSE: DRI) has announced that its Board of Directors has approved a comprehensive plan to enhance shareholder value, address changing industry dynamics in the casual dining sector and leverage the benefits of the Company's position as the premier casual dining restaurant company. As noted in the company press release, below, the comprehensive plan includes separating the Company’s Red Lobster business through a tax-free spin or a sale of Red Lobster.
Latham & Watkins LLP advised Darden on the plan with a legal team led by Washington, D.C. partner David Dantzic and New York partners Ted Sonnenschein and Jennifer Perkins on corporate matters, Los Angeles partners Laurence Stein and Pardis Zomorodi on tax matters and Washington, D.C. partners Patrick Shannon and Jason Licht on capital markets matters.
Latham & Watkins LLP is not free to comment further and all questions should be referred to the Company Contacts listed in the press release:
Darden Announces Comprehensive Plan to Enhance Shareholder Value
ORLANDO, Fla., Dec. 19, 2013 /PRNewswire/ -- Darden Restaurants, Inc. (NYSE: DRI) announced today that its Board of Directors has approved a comprehensive plan to enhance shareholder value, address changing industry dynamics in the casual dining sector and leverage the benefits of the Company's position as the premier casual dining restaurant company. The elements of this comprehensive plan include the following:
· Separate the company's Red Lobster business: Although no final decision has been made on the form of the separation, the Company expects to execute a tax-free spin-off of Red Lobster to its shareholders, but may also consider a sale of the Red Lobster business.
· Reduce unit growth, lower capital expenditures and forgo acquisitions: The reduction in new unit expansion will come primarily from suspending new unit growth at Olive Garden and more limited new unit growth at LongHorn Steakhouse, with new unit growth at the Specialty Restaurant Group continuing at a pace modestly below this year's level. The reduced unit growth will lower capital spending by at least $100 million annually. In addition, given the strength of the Company's brand portfolio post separation, the Company has determined to forgo acquisitions of additional brands for the foreseeable future.
· Increase cost savings: Through aggressive operating support cost management, the Company now expects the cost reduction efforts announced in September to result in savings of at least $60 million annually beginning in its fiscal year 2015, which starts May 26, 2014. This represents a $10 million increase over the $50 million previously projected. The Company will continue to focus on enhanced cost efficiencies as it moves through the separation process.
· Increase return of capital to shareholders: The increased cash flow from reductions in capital spending and operating support expenses will be redirected to support dividends, share repurchase and strengthening of the Company's credit profile. Consistent with its long-standing commitment to return capital to shareholders, Darden has returned over $1.3 billion to shareholders through share repurchases and dividends over the past three years. The Company expects to announce additional details on its share repurchase program as the separation plans are finalized. It is the Company's intention that, on a combined basis, Darden and Red Lobster will maintain Darden's current quarterly dividend of $0.55 per share following the separation.
· Refine compensation and incentive programs: To ensure strong alignment behind the Company's strategic direction, the Company's Board of Directors intends to refine compensation and incentive programs for senior management to more directly emphasize same-restaurant sales growth and free cash flow.
"Darden is the market leader in full-service dining because of the passionate commitment, collective capabilities and hard work of generations of employees. We are also the leader because we regularly and rigorously review our business and strategic direction, and take decisive action when market conditions change," said Clarence Otis, Darden's Chairman and CEO. "Our industry is in a period of significant change, with relatively low levels of consumer demand in each of the past several years for restaurants generally, and for casual dining in particular, as well as additional unexpected softness since June. Even with challenging industry conditions, however, companies that have outstanding assets and excellent teams can continue to create compelling value provided they are strongly aligned behind the right priorities."