Starboard Value has urged Darden Restaurants to delay plans to spin off of its struggling Red Lobster chain, becoming the second activist investor in as many weeks to call on the company to rethink its strategy for improving results.
The calls for change from two investors holding a total of almost 8 percent of Darden shares have put intense pressure on Chairman and Chief Executive Clarence Otis.
Otis has been CEO of the Olive Garden parent since November 2004 and chairman of Darden's board of directors since November 2005. He orchestrated the acquisitions of LongHorn Steakhouse, Capital Grille, Eddie V's and Yard House. Critics say these moves led to a lack of focus, bloated operating costs and roughly 18 months of market share losses at its three biggest brands.
"The proposed Red Lobster separation is not just a sub-optimal outcome, but one that may prove to be value destructive - potentially even worse for shareholders than the status quo," Starboard Value Managing Member Jeffrey Smith wrote in a letter to Darden's CEO and directors on Tuesday.
"The clock is ticking," said Hedgeye Risk Management restaurant analyst Howard Penney, who previously called for Otis' ouster.
