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This article was published 16/5/2014 (833 days ago), so information in it may no longer be current.
NEW YORK -- Darden Restaurants Inc. is setting Red Lobster adrift, but betting it can still turn around Olive Garden's fortunes.
The company, based in Orlando, Fla., said Friday it would sell its seafood chain and accompanying real estate to investment firm Golden Gate Capital in a $2.1-billion cash deal. The announcement came despite objections from some shareholders to the plan to separate Red Lobster, which was announced late last year.
Olive Garden and Red Lobster have been losing customers in recent years, even as they changed their menus and marketing campaigns to win back business. Part of the problem is the growing popularity of places such as Chipotle and Panera, where customers feel they can get the same quality of food without paying as much or waiting for table service.
Darden CEO Clarence Otis has drawn a distinction between Red Lobster and Olive Garden. Otis says Red Lobster, in particular, is increasingly unable to attract the higher-income customers Darden caters to with its more successful chains, which include Longhorn Steakhouse, The Capital Grille and Seasons 52.
Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant, in Lakeland, Fla., boasted a menu including a half-dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.
As it suffered sales declines more recently, executives blamed a variety of factors, including a refusal among customers to swallow price increases. In 2012, for instance, executives cited a $1 price hike for its Festival of Shrimp special in explaining a quarterly sales decline.
More recently, the company tried to attract a wider array of customers by adding more non-seafood dishes to Red Lobster's menu. The efforts didn't take hold.
Darden sees more potential in fixing Olive Garden, which has about 830 locations.
The company recently reworked the logo for the Italian-flavoured chain and has been adding lighter menu items, as well as smaller dishes such as "crispy risotto bites" it says reflect eating trends.
Still, affordability is an ongoing issue across the industry and Darden has been slow to address it. At the height of the downturn, for instance, Applebee's introduced a "2 for $20" deal that proved so popular it ended up as a menu fixture.
Activist investor Barington Capital had challenged Darden's plans to sell Red Lobster, saying the company should separate Olive Garden and Red Lobster as a pair from its other chains, which include Bahama Breeze, Eddie V's and Yard House.
Barington said in a statement Darden's decision was "unconscionable," given the concerns expressed by shareholders.
Darden noted its deal is not subject to shareholder approval.
After transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire debt. The company said it expects the deal to close in its fiscal first quarter of 2015, which is this summer.
Golden Gate Capital made a separate $1.5-billion deal to sell Red Lobster's real estate to American Realty Capital Properties, then lease it back. Its other investments include California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.
Shares of Darden Restaurants Inc. closed down four per cent at $48.49.
-- The Associated Press