Barington Capital Group Announces Intention To Vote For Starboard Value's Nominees At The 2014 Annual Meeting Of Darden Restaurants

NEW YORK, Sept. 18, 2014 /PRNewswire/ -- Barington Capital Group, L.P. announced today that it has sent the following letter to the independent directors of Darden Restaurants, Inc. (NYSE: DRI), informing them that it intends to vote for the election of Starboard Value's nominees at the Company's 2014 Annual Meeting of Shareholders. 

Barington states in the letter that it steadfastly believes in Darden's vast value potential and is convinced that the best opportunity to improve long-term shareholder value at the Company is through the implementation of Starboard's plan, the basic elements of which are the same as the plan Barington released on December 17, 2013.  Barington believes that the Darden Board should vigorously pursue this plan, and believes that the director nominees proposed by Starboard are most likely to support the plan and most qualified to assist in its implementation. 

September 18, 2014

The Independent Directors
Darden Restaurants, Inc.
1000 Darden Center Drive
Orlando, Florida 32837

To the Independent Directors of Darden Restaurants, Inc.:

We are writing to inform you that Barington Capital Group, L.P. ("Barington") intends to vote for the election of Starboard Value's ("Starboard") nominees to the Board of Directors of Darden Restaurants, Inc. ("Darden" or the "Company") at the Company's 2014 Annual Meeting of Shareholders. 

We believe that the best opportunity to improve long-term shareholder value at Darden is through the implementation of Starboard's transformational plan, the basic elements of which are the same as the plan we released on December 17, 2013. These include separating Darden into independently-managed restaurant operating companies to improve execution and brand-level focus, as well as unlocking the value of the Company's extensive real estate holdings such as through the formation of a publicly traded real estate investment trust.

We believe that the Darden Board should vigorously pursue this plan, and it is our belief that the Board nominees proposed by Starboard are most likely to support the plan and most qualified to assist in its implementation. We encourage Starboard not to enter into any form of settlement agreement with the Company that could potentially hinder the implementation of the plan.

We do not support the election to the Board of the four incumbent directors seeking reelection at the 2014 Annual Meeting. For the reasons set forth below, we believe that they have failed to create long-term value for shareholders and protect shareholder interests: 

• Darden's performance has lagged its peers and key market indices under the watch of the incumbent directors. Darden's total shareholder return (including reinvested dividends) over the past one, two, three and five-year periods has lagged its mature brand peers (Bloomin Brands, Brinker International and The Cheesecake Factory), its higher-growth peers (BJ's, Chuy's, Del Frisco's, Ignite and Texas Roadhouse) and the S&P 500 index by a substantial margin. Despite the Company's efforts to portray its most recent first quarter results as an improvement, same store sales at Olive Garden declined by -1.3%, significantly below the -0.5% decline in the Sterne Agee casual dining index during the same time period.

• Despite the fact that we first shared our plan with the Company in June 2013, the incumbent directors have continued to pursue a multi-brand strategy that we believe has centralized too much of Darden's restaurant brand management. This strategy has resulted in internal complexity and diminished brand-level focus, and we are convinced that it has contributed to the Company's declining financial performance and eroding competitive position. The incumbent Board has acknowledged that Red Lobster's financial performance deteriorated under this strategy, but nevertheless continues to maintain the status quo with respect to Darden's seven remaining brands instead of implementing the proven measures we have recommended. As illustrated in our December 19, 2013 presentation, such measures have improved the long-term financial performance of a number of other multi-brand restaurant companies including Brinker International, McDonald's and Wendy's.

• The incumbent directors approved the disastrous sale of Red Lobster at what we are convinced was a "fire sale" price. Golden Gate effectively paid only approximately $600 million for Red Lobster's operating business after accounting for the $1.5 billion sale-leaseback of Red Lobster's real estate.  Moreover, as the transaction generated approximately $500 million of taxes and transaction costs, the net, after tax proceeds shareholders received for Red Lobster's operating business (exclusive of its real estate) is a paltry $100 million. This is a disappointing sum, particularly when you consider that Darden spent over $400 million to remodel its Red Lobster restaurants over the past five years. 

• We believe that the incumbent directors have repeatedly failed to provide full and fair disclosure to shareholders. Most recently, the Board told shareholders in an August 4th press release that the sale of Red Lobster was the best option for Darden because "Red Lobster's business continued to decline through fiscal year end, and based on industry trends, the declines were expected to continue for an extended time." However, in the months preceding the release, the management team of Red Lobster told Golden Gate Capital and its lenders that "each of these issues are temporary in nature, correctable, and that they have plans in place to return the business to historic levels of profitability," as was recently reported by CNBC.com in an August 19^th article. This incident appears to be part of a pattern of misleading statements that include the announcement that the Company received 9x LTM EBITDA for the Red Lobster business (without noting that it also included $1.5 billion of real estate) and allegations (that the Company has not publicly refuted) that Darden has prevented analysts critical of the Company from asking questions on earnings conference calls.

• We believe that the incumbent directors have not only failed in their duty to provide fair disclosure to shareholders, they have also willfully ignored the express wishes of shareholders. Shareholders clearly indicated that they did not want the Board to proceed with a sale or spin off of Red Lobster unless the transaction was subject to a shareholder vote. A majority of Darden's shareholders took the unusual step of calling for a special meeting to be held to vote on a resolution to make this point abundantly clear. The Board's claim that it had to proceed with the sale against the wishes of shareholders as a result of the "considerable adverse consequences" of delaying the sales process is simply not credible, especially given the disclosure that has come to light as result of the CNBC.com article.

• Despite recent claims to the contrary, the incumbent directors have refused to engage with many of Darden's shareholders. We do not know whether this is a result of arrogance or indifference, but the incumbent directors have repeatedly rejected our requests to discuss our recommendations to improve long-term shareholder value, including by failing to respond to our private letter to the Board dated September 23, 2013 (a copy of which is available on our website). We fail to see why the owners of Darden should trust that the incumbent directors, who have been unresponsive to concerned shareholders like ourselves for over a year, will act any differently if reelected.

• Darden has a horrific corporate governance record under the stewardship of the independent directors. Institutional Shareholder Services has issued Darden its worst possible governance rating, while Glass Lewis has given Darden a "D" pay-for-performance grade in each of the last two years. The incumbent directors also failed to separate the Chairman and CEO role until after we filed a shareholder proposal calling for a vote on the matter. The Company also has a "poison pill" shareholder rights plan in place that has not been approved by shareholders. Moreover, the Board amended Darden's bylaws in March, also without shareholder approval, to add measures that make it materially more burdensome for shareholders to nominate directors, restrict the ability of shareholders to choose the forum in which to assert claims for corporate wrongdoing and provide the Board with broad discretion to delay an annual or special meeting. The Company's claim that these bylaw amendments were "part of its regular corporate governance review" is clearly disingenuous given the likelihood that Starboard would bring a consent solicitation and nominate directors for election to the Board. As a result, the Company has since been sued in Florida by two pension funds.

We recognize that the Board is taking some responsibility for the poor decisions and conduct of the incumbent directors through its decision to replace two-thirds of the Board at the 2014 Annual Meeting. We believe, however, that shareholders should hold all incumbent Board members accountable, including Michael Barnes, Christopher Fraleigh, Michael Rose and Maria Sastra, the four incumbent directors that are seeking reelection. As illustrated in the table above, these four Board members have failed to create any meaningful long-term value for shareholders over the past five years, which we attribute, in part, to their lack of restaurant operating experience. We also believe that they have failed to protect shareholder interests for the reasons set forth herein and in our August 4^th letter to the Corporate Secretary of Darden (a copy of which is available on our website). 

In particular, we believe that Mr. Rose and Ms. Sastra, who have served on the Board for 19 and 16 years, respectively, should not be reelected. As members of the Board's Nominating and Corporate Governance Committee, we believe that Mr. Rose (who is the Chairman) and Ms. Sastra should be held directly accountable for Darden's poor corporate governance. We also question Ms. Sastra's independence since The New York Post reported on October 23, 2013 that she is the President and Chief Operating Officer of Signature Flight Support Corp., a company that is party to a 10-year sublease agreement with Darden to provide an aircraft hangar, fuel and other services for the Company's $18 million Cessna Citation Sovereign.  It appears that Ms. Sastra has a history of getting embroiled in conflicts of interest. In 2008, Ms. Sastra was apparently forced to resign from the Board of Directors of Gaylord Entertainment after her employer at that time deemed it a conflict of interest. 

We do not share the Board's view that retaining one-third of Darden's incumbent directors will benefit shareholders by "ensuring continuity." Indeed, we believe it is precisely your efforts to maintain the status quo that have resulted in the Company's poor operating performance and failure to adopt long-term value creation strategies. We do support, however, Starboard's plan to add back to the Board up to two incumbent directors that have the skill sets, experience and perspectives that will best complement the new Board members if all of Starboard's nominees are elected.  It is not clear to us that any of the four incumbent directors seeking reelection would best fill this role.

In conclusion, we have been deeply disappointed with the performance of the Company under the incumbent directors. We believe that, at best, they have been reactive, not proactive, in taking steps to improve long-term shareholder value. More often than not, they have been responsible for actions that we believe have shown a disregard for shareholder interests, good corporate governance practices and full and fair public disclosure. 

We steadfastly believe in Darden's vast value potential, which we are convinced can be realized through the implementation of our plan.  We have thought carefully about what directors we believe are best suited to effect the changes necessary to improve long-term shareholder value at the Company and are convinced that the election of Starboard's nominees at the 2014 Annual Meeting is in the best interests of all Darden shareholders.

Sincerely,

James A. Mitarotonda

About Barington Capital Group, L.P.

Barington Capital Group, L.P. is an investment firm that, through its affiliates, manages a value-oriented, activist investment fund that was established by James A. Mitarotonda in January 2000. The Fund invests in undervalued publicly traded companies that Barington believes could appreciate significantly in value as a result of a change in corporate strategy or from various operational, financial or corporate governance improvements.  Barington's investment team, senior advisors and industry contacts are seasoned operating specialists, experienced in working with companies to design and implement initiatives to improve their financial and share price performance. Barington is a frequent investor in branded consumer focused companies, with prior investments in companies such as Lone Star Steakhouse, Dillard's, Warnaco, The Jones Group, Pep Boys, Steven Madden and Nautica.

PLEASE SEE HTTP://WWW.BARINGTON.COM/PRESS-RELEASES.HTML FOR IMPORTANT DISCLOSURES CONCERNING THE LETTER.

SOURCE Barington Capital Group, L.P.