Jeff Smith Initiates 5.6% Stake and Goes Activist on Darden Restaurants, Inc. (DRI)

Jeff Smith and his hedge fund Starboard Value are bullish on Darden Restaurants, Inc. (NYSE:DRI), and in a new filing with the SEC revealed initiating a position in the company. The position amasses 7.25 million shares, which represent 5.6% of the company’s common stock. The holding is activist by nature and its value amounts to around $370.4 million.

According to the filing, Starboard purchased shares of Darden Restaurants, Inc. (NYSE:DRI) because it considers the company very undervalued, and hence, it represents an attractive investment opportunity. The fund states that the board and the management of the company can take some steps that will increase the value for shareholders. At the same time, Starboard Value  has reviewed the company’s financial results for the second quarter of fiscal 2014, as well as the proposed spin off of Red Lobster business from the company.

 “Further, Starboard is disappointed with the continued poor financial performance of the Issuer. Starboard intends to closely monitor developments at the Issuer and engage in discussions with the Issuer, including discussions with members of management and the Board, as well as with other shareholders and interested parties. Starboard may make recommendations regarding corporate strategy, capital allocation, financial performance, and Board composition,” Jeff Smith’s fund stated in the filing.

Also, the investor considers that Darden Restaurants, Inc. (NYSE:DRI) can achieve a significant value from its real estate holdings, and from other business transactions like sales or separations.

At the end of last week, Darden Restaurants, Inc. (NYSE:DRI) reported about a plan to increase the shareholder value f the company that has been approved by the board. The plan includes the separation of the Red Lobster business that can be achieved via a spin-off to the shareholders, or the sale of the business. Other points involve the reduction of unit growth, diminished capital expenditures an increase of cost savings and expand return of capital to shareholders.

Darden Restaurants, Inc. (NYSE:DRI)Darden Restaurants posted net EPS from continuing operations of $0.15 in the second quarter of fiscal 2014, down by over 42% over the year.

Israel Englander’s Millennium Management, in its latest 13F, revealed holding around 1.33 million shares of Darden Restaurants, Inc. (NYSE:DRI), with a reported value of $61.8 million.

Disclosure: none