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Reports US

US stock market daily report (May 16, 2014, Friday)

May 19, 2014, Monday, 05:25 GMT | 01:25 EST | 09:55 IST | 12:25 SGT
Contributed by Millennium Traders

Darden Restaurants, Inc. (DRI-NYSE) announced the sale on Friday, of their seafood restaurant chain Red Lobster and related real estate assets, to private equity firm Golden Gate Capital for $2.1 billion in cash. The sale was strongly opposed by hedge fund Starboard Value LP. Starboard reportedly said such a move could destroy nearly $800 million of shareholder value in DRI. Darden said the company expects net cash proceeds of nearly $1.6 billion from the sale, of which nearly $1 billion would be used to retire debt. Remainder of the sale proceeds would be used to buy back up to $700 million of shares in fiscal 2015. The Red Lobster chain has 700 restaurants throughout the USA and Canada. Darden expects the deal to close in the first quarter of 2015.

Darden said it chose Golden Gate for the deal because it's an all-cash transaction which allows the company to maintain its current dividend of 55 cents per share or $2.20 per year.

Clarence Otis, chairman and CEO for Darden said in a statement, "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 feels by selling Red Lobster, management can focus on reinvigorating Olive Garden, Darden's leading revenue generator.

Same-restaurant sales for Red Lobster have fallen during five of the last six quarters which contributed nearly 31% of Darden's total revenue in 2013. In the three-months quarter that ended on February 23, Red Lobster sales fell 8.7% from same period of 2013, to $611 million.

Barington Capital Group LP, another activist investor of DRI, pressed Darden to move the Red Lobster and Olive Garden restaurant chains into one company. Additionally, Barington pressured Darden to move its higher-growth chains which include LongHorn Steakhouse and Capital Grille, into yet another company.

Darden is the largest USA operator of full-service restaurants.