Darden Agrees to Sell Red Lobster for $2.1 Billion

Darden Agrees to Sell Red Lobster for $2.1 Billion
Daniel Acker/Bloomberg via Getty Images

NEW YORK -- Darden Restaurants (DRI) is setting Red Lobster adrift, but betting that it can still turn around Olive Garden's fortunes.

The company, which is based in Orlando, Florida, said Friday that it would sell its seafood chain to investment firm Golden Gate Capital in a $2.1 billion cash deal. The announcement came despite objections from some shareholders to the plan separate Red Lobster, which was announced late last year.

Both Olive Garden and Red Lobster have been losing customers in recent years, even as they changed their menus and marketing campaigns to win back business. Part of the problem is the growing popularity of places such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA), where customers feel they can get the same quality of food without paying as much or waiting for table service.

But Darden CEO Clarence Otis has drawn a distinction between Red Lobster and Olive Garden.

Otis says Red Lobster in particular is increasingly unable to attract the higher-income customers Darden caters to with its more successful chains, which include Longhorn Steakhouse, The Capital Grille and Seasons 52.

Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant in Lakeland, Florida, boasted a menu including a half a dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.

As it suffered sales declines more recently, executives blamed a variety of factors, including a refusal among customers to swallow price increases. In 2012, for instance, executives cited a $1 price hike for its "Festival of Shrimp" special in explaining a quarterly decline in sales.

More recently, the company tried to attract a wider array of customers by adding more non-seafood dishes to Red Lobster's menu. The efforts didn't take hold.

Darden sees more potential in fixing Olive Garden, which has about 830 locations. The company recently reworked the logo for Italian chain and has been adding lighter menu items, as well as smaller dishes like "crispy risotto bites" that it says reflect eating trends.

Still, affordability is an ongoing issue across the industry and Darden has been slow to address it. At the height of the downturn, for instance, Applebee's introduced a "2 for $20" deal that proved so popular it ended up becoming a menu fixture.

Activist investor Barington Capital has challenged Darden's plans to sell Red Lobster, saying the company should separate Olive Garden and Red Lobster as a pair from its more successful chains. Darden's other chains include Bahama Breeze, Eddie V's and Yard House.

Darden noted in a statement that its deal isn't subject to shareholder approval.

After the transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire outstanding debt. The company said it expects the deal to close in its fiscal first quarter of 2015, which is this summer.

Golden Gate Capital made a separate $1.5 billion deal to sell Red Lobster's real estate to American Realty Capital Properties, then lease it back. Its other investments include California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.

Shares of Darden Restaurants were down nearly 4 percent at $48.84.

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Mark A. Dowdy

Had dinner at RL port Huron Mi. last weekend. Quality of food has gone down while prices rise. Lobster tail must have have been laying out for a long time flavor was gone, so was I.

May 19 2014 at 12:42 PM Report abuse rate up rate down Reply

Bring back Chi Chi's Mexican Restaurants !!!

May 17 2014 at 11:40 AM Report abuse rate up rate down Reply

Let me see. Gas station bean buritto or Olive Garden? Burrito, please.

May 17 2014 at 7:30 AM Report abuse rate up rate down Reply

Red Lobster lost it as far as I'm concerned when they stopped serving hushpuppies. That, coupled with below average customer service, highter prices, more emphasis on "up scale" dine at your own risk scenarios. Service sells and compared to other restaurants we frequent R L's has dropped AND, we live in the south. Chain restaurants have not fared well in a region that KNOWS what food should taste like. You cannot "retrain" a region to "like" your food if it is NOT PREPARED correctly to begin with.
Olive Garden went off our list 4 years ago when their soups started tasteing "canned" and not fresh. Microwave and eat tasting pasta dishes also turned us completely off. If you want REAL Italian food, find a little "mom and pop" Italian diner and find out what REAL Itlaian food is supposed to taste like.
Neither of these companies seem to remeber that "service sells, and good food at a reasonable price not only pleases customers but BRINGS THEM BACK FOR MORE. They are "cost cutting" themselves out of business.

May 17 2014 at 6:18 AM Report abuse rate up rate down Reply
1 reply to Reubarb's comment

Amen....everything you say is true and I have been saying for the last several years. Service is poor...food quality and preparation is poor...both of these places has gone down the tubes. If service and food is good you don't mind paying the price. Its not just one store, but all that I have been too. Its almost like the employees know what it used to be like and how its gone downhill and don't have any pride in what they are doing or the product they set in front of you...its too bad. I would never call this upscale dining...even at its best. Its a shame. really...but it seems no one cares anymore. Its all about quanity rather than quality and the almighty dollar the fat cats can make. I'm all for the authentic "Mom and Pop" places...even if its a little hole in the wall...if the food is great...I'm there. The trouble places like Red Lobster...Olive Garden, Applebee's, TGI Fridays, etc. have put them out of business...now Mr and Mrs John Q Public wishes they were here.

May 17 2014 at 4:20 PM Report abuse rate up rate down Reply

Olive Garden ?
'Italian' food for people who don't know any better.

May 17 2014 at 4:58 AM Report abuse +2 rate up rate down Reply

Here is a question...
Will the gift cards still be good at Red Lobster?
I have good at many Darden Restaurants.

May 17 2014 at 4:26 AM Report abuse rate up rate down Reply

NATO kills Russians in Ukrains!!!!!!!!!!!!!!!! Help!!!!!!!!!!!!!!!!!!!!!!

May 17 2014 at 3:14 AM Report abuse rate up rate down Reply

I love Red Lobster and their table service. When I order my dinner, dessert and drink. Everything is perfect, warm and delicious. And, I never have a problem with providing a very nice tip for the Table Waiter. Red Lobster is my favorite Seafood Restaurant.

May 17 2014 at 2:57 AM Report abuse rate up rate down Reply
1 reply to siketrise's comment

Are there any non-chain fish joints where you live?
Some are far and away better than Red. L.

May 17 2014 at 3:11 PM Report abuse rate up rate down Reply

I stopped frequenting OLIVE GARDEN after their clean-up crew stole a gorgeous shawl I had which was made for me by a friend in Switzerland of the most fantastic combination of cashmere and silk imaginable. I went back to ask the manager if he had seen it, but he (Chris) was totally rude and accused me of losing it elsewhere. When I told him that I fihished eating right before the clean-up crew got in, he got even nastier. Now, I tell everyone I know never to eat there and it isn't even "ITALIAN" food to start with.

May 17 2014 at 2:12 AM Report abuse -1 rate up rate down Reply
1 reply to blazinglight's comment

Not making light of your loss, I'd be annoyed as well. But that sounds like an issue with your local restaurant, not every Olive Garden. As for it not being "Italian" food..eh...there's much better Italian restaurants here, but there's also some local ones that aren't that great.

May 17 2014 at 2:27 AM Report abuse rate up rate down Reply

maybe they should add deep fryed strack to the menu

May 17 2014 at 12:55 AM Report abuse rate up rate down Reply