Darden Restaurants, Inc. (DRI): Jeffrey Smith’s Proxy Fight Might Soon Turn Victorious

Jeffrey Smith‘s Starboard Value has issued a new press release outlining the fund’s position regarding the management of Darden Restaurants, Inc. (NYSE:DRI) and urging other shareholders to vote in favor of its slate of directors at the next shareholders meeting that will take place on October 10. Starboard, which owns around 8.8% of the company said in the press release that its candidates are experienced enough to make a change at Darden and have already developed a turnaround plan to increase the shareholder value at the company.

Jeff Smith

Starboard added Darden Restaurants, Inc. (NYSE:DRI) to its equity portfolio at the end of last year and went activist having tried to covince the company against the separation of the Red Lobster business. Nevertheless, despite numerours calls for a shareholder meetings and arguments agains the Red Lobster separation, Starboard’s plans did not go through and, in July, Darden completed the sale of Red Lobster to Golden Gate in a deal worth around $2.1 billion in cash. Nevertheless, Starboard continues its activism in the company intending to nominate new directors to the company’s board.

Earlier this month, Starboard also announced that it had filed an Expedited Motion in the Florida Court against Darden Restaurants, Inc. (NYSE:DRI). The investor accused the company of misinforming the public regarding the financial situation of Red Lobster and selling it at a fire sale price. Therefore Starboard tries to get its hands on Darden’s corporate books and record to deeper investigate this matter.

So far, there have been reports that show that Starboard might be on the right track with its suspicions. In August, CNBC reported that it has obtained a confidential document that showed that Darden Restaurants, Inc. (NYSE:DRI) was actually telling two stories about its Red Lobster business. While general shareholders were told that Red Lobster business is suffering and is no longer profitable, the company told another group of debt investors that Red Lobster might in fact turn around in a couple of years.

In addition, Starboard is not the only shareholder of Darden with such suspicions. Another CNBC report from Monday said that Teamsters Local 443 Health Services & Insurance Plan of Connecticut filed a suit against Darden Restaurants, Inc. (NYSE:DRI)’s directors accusing it of selling Red Lobster at a “fire sale” price in order to keep their positions on the board.

Starboard and Teamsters are only two of several investors who are fighting the board of the company and seeking a change. Taking this into account it’s most probable that the current board will not be retained with Starboard’s candidates having a big chance to be appointed. Jeff Smith, among other things, seeks the separation of Darden Restaurants, Inc. (NYSE:DRI) into two companies and the spin-off of the company’s real estate assets into a third entity.

With the Darden Restaurants, Inc. (NYSE:DRI)’s shareholders meeting not so far along, this story might come to an end. If Starboard succeeds, it will have a chance to prove the efficiency of its plans to maximize the shareholder value at the company, considering that it will have the support of the majority of other shareholders.

Other investors have been also bullish on Darden, amid Starboard’s activist moves. One of them is Kenneth Squire, whose fund 13D Management, tracks activist hedge funds and invests in companies with significant activist presence. 13D Management upped its exposure by 30% during the second quarter and reported 150,500 shares of Darden Restaurants, Inc. (NYSE:DRI) in its latest 13F filing. Ken Griffin’s Citadel Investment Group also increased its stake by 20% to 331,900 shares held as of the end of June.

Aside from Darden Restaurants, Inc. (NYSE:DRI), Starboard is also having several other proxy fights with the boards of Wausau Paper Corp. (NYSE:WPP) and MeadWestvaco Corp. (NYSE:MWV). Despite some wins, such as the appointment of a director to Wausau Paper’s board and the departure of the CEO, Jeff Smith keeps urging the leadership of both companies to take more serious actions. Among other things, Jeff Smith considers that MeadWesvaco Corp, a paper and packaging company, needs to spin-off some of its non-core assets to unlock some shareholder value.

Disclosure: none