Darden Responds to Shareholders Ahead of October Vote

Darden 1Darden Restaurants, headquartered here in Orlando and employing 150,000 people, issued a statement responding to shareholders regarding a September 25, 2014 report by Institutional Shareholder Services (ISS). The report relates to the election of directors to Darden’s Board of Directors at the Company’s 2014 Annual Meeting of Shareholders to be held on October 10, 2014. Darden admits many shareholders have expressed support for new perspectives for the company. But they are warning strongly against ceding total control of the Board of Directors to Starboard Value and its slate of nominees.

Darden Restaurants (NYSE: DRI) owns and operates more than 1,500 restaurants that generate approximately $6.3 billion in annual sales. According to the company statement, Darden urges shareholders “to vote ONLY on the BLUE proxy card ‘FOR ALL’ of Darden’s highly qualified, experienced and independent director nominees: Michael W. Barnes, Gregory L. Burns, Jeffrey H. Fox, Christopher J. Fraleigh, Steve Odland, Michael D. Rose, Maria A. Sastre and Enrique Silva. Shareholders may vote by mail, phone or internet following the instructions on the BLUE proxy card.”

The company also clearly warns shareholders: “CAUTION: Any vote on the white card could result in the full turnover of Darden’s Board. Darden urges shareholders – DO NOT SIGN OR RETURN ANY WHITE CARD. SIMPLY DISCARD IT.”

Click here for the full Darden statement:

We believe that shareholders should be alarmed that ISS has recommended wholesale change with virtually NO regard in its report to the positive improvement underway in Darden’s operations, the risks associated with the full Board turnover that Starboard Value L.P. and its affiliates (“Starboard”) is seeking, and the meaningful enhancements made to Darden’s leadership structure, including the search for a new Chief Executive Officer and the Company’s new slate of independent director nominees, which would result in eight of 12 directors new this year.  Instead, the ISS report places large reliance on mistaken perceptions regarding the Red Lobster transaction that are inconsistent with the facts.

The sale of Red Lobster was the culmination of a robust and deliberate review process that began in early 2013.  This process was designed to enable Darden to maximize value and minimize risks associated with continuing to own the business, including risks from the brand’s ongoing deterioration and uncertain pathway for recovery.  The sale is also consistent with Darden’s strategy of increasing its focus on its Olive Garden® Brand Renaissance.  The$2.1 billion all cash consideration from the Red Lobster sale provided Darden with immediate and certain value to reduce debt and support our capital return initiatives, including a significant share repurchase and maintaining the Company’s annual dividend at $2.20 per share.  The flawed analysis upon which ISS relies results in $107 million of incorrect costs that were never incurred and undervalues the amount of the deal consideration attributable to Red Lobster’s operating business and related assets by nearly half a billion dollars, as detailed in the presentation and associated press release issued by Darden on August 4, 2014.     

Contrary to ISS’s view, we have heard from many shareholders who do not support ceding total control of the Board to Starboard and its nominees. While these shareholders support new perspectives, they also recognize the risks of the full board turnover that Starboard is seeking – risks that ISS appears to have ignored.  Darden’s slate of director nominees is the only slate that provides the benefit and balance of new perspectives as well as continuity of experience and insights with four new independent nominees unaffiliated with the Company or Starboard, four highly qualified continuing independent nominees, and four seats to be filled by Starboard – resulting in eight of 12 new independent directors this year.

There are critical and value-impacting decisions facing Darden – including the selection of Darden’s next Chief Executive Officer and strategic decisions regarding our brands, cost structure and operating initiatives.  We believe these decisions are best made by an independent, balanced Board that is comprised of directors who are best-positioned to represent the interests of ALL Darden shareholders.  Indeed, we believe it would be a mistake to entrust these decisions to the handpicked nominees of one minority shareholder, Starboard. In doing so, the ISS recommendation would replace the robust boardroom debate required of sound corporate governance and enabled by independent thinkers with Starboard’s 12 director nominees who are already committed to following Starboard’s point of view. 

In determining their vote, we urge all Darden shareholders to consider the following:

  • We are making significant progress on our operating priorities, including the Olive Garden Brand Renaissance.  In a “people facing” business where relationships matter, too much turnover, particularly at the leadership level, can be distracting and disruptive.  Darden has already announced a search for a new Chief Executive Officer.  We do not believe it is in shareholders’ best interests to elect an entirely new Board, which could impede initiatives that are largely underway and delivering results.
  • We believe Darden’s four continuing independent directors provide critical knowledge and insights about the Company, the industry and what has made Darden’s brands successful over time and through various economic cycles.  This institutional knowledge cannot be replaced or replicated by any of Starboard’s nominees; we believe that removing all of Darden’s continuing nominees, and the knowledge they provide, would hinder the progress we are making and successful decision making going forward.
  • New, independent perspectives are valuable.  Darden’s slate contemplates four new independent nominees unaffiliated with the Company or Starboard as well as four seats to be filled by candidates proposed by Starboard.  All of Darden’s director nominees share the common goal of enhancing shareholder value and are prepared to work collaboratively with the four Starboard nominees to consider all alternatives to achieve this objective.   

In contrast, in addition to what we believe are significant experience gaps in the Starboard slate, four of Starboard’s nominees have been nominated and added to at least one other Board through Starboard (Peter Feld, James Fogarty, Cynthia Jamison and Jeff Smith), and several nominees have previously led their own activism campaigns or served as dissident director candidates (Betsy Atkins, Brad Blum, Peter Feld, William Lenehan and Jeff Smith).  In addition, as previously detailed in a prior press release, a review of the public record shows a web of numerous other connections that Starboard’s director nominees have to Starboard, to Jeff Smith and to each other, and Starboard’s nominees have already publicly pre-committed themselves to following Starboard’s plan.  These factors raise concerns to us about the independence of Starboard’s nominees and their willingness to serve the best interests of ALL Darden shareholders.

We do not believe Starboard’s director nominees are best suited to take total control of Darden’s Board of Directors.

In another contest for control, even ISS has recognized the value of a truly independent dissident slate comprised solely of nominees who have no prior affiliation with the dissident and are “independent of the large dissident shareholder…so that the proposed change in control of the board is not a de facto shift of control to that shareholder itself.  The willingness of that shareholder to keep any of its employees out of the nomination, moreover, strongly suggests an appropriate attentiveness on [the dissident’s] part to the independent fiduciary role of the board, and a sharp focus on optimizing the chances for the company’s success under the reconstituted board.”1

  • While ISS suggests that Starboard will add back two of Darden’s current directors, we do not believe that two isolated voices – against twelve nominees already predisposed and pre-committed to one shareholder’s point of view – will provide for the meaningful, independent and robust boardroom debate and direction that is required to drive sustainable value creation, particularly given the strategic decisions that Darden faces.  Further, we see no reason for shareholders to entrust Starboard and its nominees to make these selections; we believe shareholders should decide for themselves which directors should be elected.
  • Darden is a global company with a complex business that includes unique supply chain requirements, multiple consumer segments, specific brand needs and 150,000 employees.  It requires long-term vision and long-term strategic planning to drive sustainable value creation.  Darden’s director nominees have experience and proven records directly overseeing complex operations similar to Darden’s, guiding successful strategic execution, operational turnarounds and asset optimization initiatives.
  • By attempting to replace all 12 members of Darden’s Board with its own preferred nominees, Starboard is seeking effective control of the Company.  We do not believe that it is in the interests of all shareholders for a single minority shareholder to control 86% of the Board’s representation when it holds 8.8% of the shares2

Darden shareholders are reminded that their vote is important, no matter how many or how few shares they own.  The Darden Board urges shareholders to vote ONLY on the BLUE proxy card “FOR ALL” of Darden’s highly qualified, experienced and independent director nomineesMichael W. Barnes, Gregory L. Burns, Jeffrey H. Fox, Christopher J. Fraleigh, Steve Odland, Michael D. Rose, Maria A. Sastre and Enrique Silva.  Shareholders may vote by mail, phone or internet following the instructions on the BLUE proxy card. 

CAUTION: Any vote on the white card could result in the full turnover of Darden’s Board.  Darden urges shareholders – DO NOT SIGN OR RETURN ANY WHITE CARD. SIMPLY DISCARD IT.

Innisfree M&A Incorporated is serving as the Company’s proxy solicitor and can be contacted toll-free at (877) 825-8631.


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