Tempers are boiling over in the hedge fund world with the sudden and surreptitiously reached deal by Darden Restaurants Friday to sell Red Lobster to the private equity firm Gold Gate Capital for $2.1 billion. And now, a pair of activist hedge funds have joined forces in extremely strongly worded calls for a shareholder vote to strike down the deal.
On Friday, Starboard Value, which owns 5.5% of Darden, said the deal "woefully undervalued" Red Lobster and its real estate assets, and urged shareholders to convene in opposition of the deal. And on Monday, 2% Darden owner Barington Capital vehemently denounced Darden's move and again called for a shareholder vote to stop the deal from closing.
"It is unconscionable that the Darden Board would allow the Company to sell its Red Lobster business for what amounts to a 'fire sale' price after shareholders clearly indicated that they did not want the Company to enter into a transaction unless it was subject to their approval," Barington's statement said. "It is clear to us from the Board's decision to pursue this imprudent transaction and its horrific record in the area of corporate governance, that Darden's independent directors are neither focused on, nor responsive to, shareholder concerns. In over 14 years of investing, we have never seen a group of directors that have allowed a company to be run with such a blatant disregard for shareholder interests."
The deal's timing appeared to catch both activist hedge funds off guard. Just last week at the SALT conference in Las Vegas, Smith spoke about Starboard's plans for Darden on a panel with other activist investors, and fielded questions from the audience on the matter.
Darden had been less than cooperative in recent weeks. After a majority of shareholders voted to call a special meeting to vote on the Red Lobster sale, Darden missed a May 6 deadline set by Starboard Value to hold the meeting, an indicator to Smith that Darden may have been cooking up a deal behind the scenes. Smith told BuzzFeed earlier this month that Darden was dragging its feet on the meeting and that Starboard was considering legal action.