UPDATE 3-Activist steps up push for change at Darden Restaurants

Thu Nov 21, 2013 4:38pm GMT

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By Olivia Oran

Nov 21 (Reuters) - Activist investor Barington Capital Group accelerated its push for change at restaurant chain and Olive Garden parent Darden Restaurants Inc on Thursday.

Barington, which leads a shareholders' group that owns a stake of more than 2 percent in the chain, said it hired investment bank Houlihan Lokey to conduct an independent review of recommendations to improve Darden's financial performance.

New York-based Barington has urged Darden management to break the company up and explore spinning off its real estate properties. The company, which manages eight restaurant brands, has become too large and complex to compete effectively with its rivals, Barington said.

Barington recommends that Darden split into two companies -one for Olive Garden and Red Lobster, and the other for its higher-growth brands, including LongHorn Steakhouse, The Capital Grille, Yard House and Bahama Breeze.

Barington also recommends that Darden explore creating a publicly traded real estate investment trust. Barington does not believe that the value of Darden's real estate assets, which includes 1,048 owned restaurants and the buildings on 802 ground lease sites, is adequately reflected in the company's stock price.

Darden's earnings have suffered recently as U.S. consumers have cut spending and competition has increased from brands like Panera Bread Co and Chipotle Mexican Grill Inc.

In the first quarter ended Aug. 25, net income fell 37 percent to $70.2 million, or 53 cents per share. Darden has said it will cut operating costs by $50 million per year, starting in 2015.

Barington, which has also recommended that Darden cut costs by $100 million to $150 million, praised the company for beginning to reduce expenses.

"While we were encouraged by Darden's recent announcement that it is taking steps to reduce expenses by approximately $50 million a year - a helpful start toward addressing the cost reductions we recommended - we believe there is much more work that needs to be done and in a far more expeditious timeframe," Barington President James Mitarotonda said in the release.

Barington said that it will share Houlihan Lokey's review of its recommendations once it is complete.

In response, Darden said in a statement it welcomed input "toward the goal of enhancing shareholder value."

"While it is the Company's policy not to comment on specific discussions with shareholders, the Company has had dialogue with Barington Capital, and the Board will take the time necessary to thoroughly evaluate Barington's suggestions, just as the Company does for any of its shareholders," Darden said.

Barington said it is also working with proxy solicitation firm MacKenzie Partners.