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Red Lobster sold for $2.1B

Golden Gate Capital, a private-equity firm buying Red Lobster, said it had no immediate plans to close any of the restaurants.

New York Times (2013)

Golden Gate Capital, a private-equity firm buying Red Lobster, said it had no immediate plans to close any of the restaurants.

ORLANDO — Darden Restaurants announced Friday that it has reached an agreement to sell Red Lobster to private-equity firm Golden Gate Capital for $2.1 billion.

Red Lobster will continue to be based in Orlando, and there are no immediate plans for restaurant closures. Darden would not say how many corporate employees will work for the company.

The sale should close this summer.

Analysts had mixed views of the sale, and Darden's stock closed down 4.3 percent Friday.

It's a positive that Darden "rids itself of its most troubled business," Janney Capital Markets analyst Mark Kalinowski wrote in a note to investors. The sale price seems reasonable, too.

"However, after a sale of Red Lobster, 'New Darden' would still consist of seven (read: too many) restaurant brands," Kalinowski wrote.

Darden's seven other brands are: Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, the Capital Grille, Eddie V's and Yard House.

After the sale, Darden expects to receive net cash proceeds of about $1.6 billion. Golden Gate plans to do a sale-leaseback of restaurant property.

Darden said in a news release it will use $1 billion to retire outstanding debt and the rest for share repurchases.

Hedge fund Starboard Value has been trying to halt the sale and recently persuaded holders of 57 percent of Darden stock to vote in favor of a special meeting to weigh in on a sale or spinoff of the brand.

Starboard officials could not immediately be reached for comment.

The announcement "is a thumb in the eye of activist investors," Kalinowski wrote.

In a slide presentation, Darden said the process "would be extremely difficult to restart if it were significantly delayed," and that would risk further decline in Red Lobster's performance and a less attractive price.

Golden Gate used to own Romano's Macaroni Grill, which it sold last year to Ignite Restaurant Group. Its investments have also included California Pizza Kitchen, Payless ShoeSource, Eddie Bauer, Express, Zales, J.Jill and Pacific Sunwear.

"Most private equity firms are the same. They try to buy a beat-up brand like this and then what they'll do is typically go in and try to cut significant costs out of the system," said Steve West, an analyst who covers Darden for Investment Technology Group.

Then they often either sell the brand or take it public in a few years, he said.

Red Lobster sold for $2.1B 05/16/14 [Last modified: Friday, May 16, 2014 8:51pm]
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