Darden Restaurants, the nation’s largest casual dining operator, has enlisted the aide of two Am Law 100 firms in a growing battle with activist hedge funds pushing for changes at the company.
While Orlando-based Darden announced last week that it will spin off its Red Lobster brand, some investors want to see a complete breakup of the conglomerate, which also owns The Capital Grille, LongHorn Steakhouse and Olive Garden chains.
New York–based Barington Capital Group, which owns more than 2 percent of Darden shares, retained outside advisers last month amid a ramped-up effort to push Darden to split itself into three separate units. Among those advisers are Kramer Levin Naftlis & Frankel corporate cochair Thomas Constance and corporate partner Peter Smith, both of whom have a history of advising the hedge fund in proxy battles.
Barington, whose COO and general counsel is former Skadden, Arps, Slate, Meagher & Flom associate Jared Landaw, began campaigning in October for Darden to break itself up. (Landaw is also a cofounder of the Gridiron Games, a charity event sponsored each year by the National Football League and American Lawyer with the goal of raising money for Big Brothers and Big Sisters of New York City—a nonprofit on whose board of trustees Landaw serves.)
This month Barington put together an 85-page presentation detailing its plan to improve shareholder value. That proposal calls for underperforming brands such as Red Lobster and Olive Garden to be separated from high-brow eateries such as The Capital Grille, Eddie V.’s and Seasons 52. Barington also wants Darden to explore creating a $4 billion real estate investment trust for its restaurant properties.
Darden responded last week by agreeing to spin off Red Lobster—a seafood chain founded in 1968—from the rest of its business, although it has not yet announced whether that will happen via a sale or the creation of a separate public company. Red Lobster’s sales slipped nearly 5 percent to $561 million in the third quarter of 2013.
Latham & Watkins corporate partners David Dantzic, Edward “Ted” Sonnenschein and Jennifer Perkins are leading a team from the firm advising Darden on the matter that includes tax partners Laurence Stein and Pardis Zomorodi and capital markets partners Patrick Shannon and Jason Licht.
Darden general counsel Teresa Sebastian and division general counsel Anthony Morrow are leading an in-house team advising the company on its efforts to shake off Red Lobster. Cornelius “Connie” Mack III, a former U.S. senator and ex-public policy adviser at King & Spalding and Pillsbury Winthrop Shaw Pittman, serves as an independent member of Darden’s board of directors, which is being advised by Wachtell, Lipton, Rosen & Katz cochairman and corporate partner Daniel Neff.
In an effort to appease activist investors, Darden has said publicly it will forego other restaurants acquisitions and move to cut costs at its current chains. On Monday another activist investor, New York–based Starboard Value, announced that it had taken a 5.6 percent stake in the company worth about $374 million at current market valuations.
Steven Wolosky, a well-regarded hedge fund lawyer and name partner at New York’s Olshan Frome Wolosky, is advising Starboard Value, according to an SEC filing by the investor. Starboard Value states in its filing that Darden is an “attractive investment opportunity,” but will have to do more than a Red Lobster spin-off to increase shareholder value. Olshan Frome Wolosky partner Andrew Freedman told The Deal last week that 2013 has been a big year for activist campaigns.
Sandell Asset Management is engaged in activist campaigns at Bob Evans Farms, which runs more than 500 restaurants throughout the U.S., and Greyhound bus operator FirstGroup. Sandell general counsel Adam Hoffman did not respond to a request for comment on the New York–based hedge fund’s outside counsel on both matters.
David Rosewater, cochair of the shareholder activism practice at Schulte Roth & Zabel, recently helped Taconic Capital Advisors reach an agreement with Tulsa-based WPX Energy to increase the size of the natural gas producer’s board. Taconic, whose chief compliance officer and general counsel is Betsy Keeler, is the second-largest shareholder in WPX.
And Wachtell, a time-honored nemesis of many activist funds, save for the one it represents that controls Sears Holdings, has recently ratcheted up its battle with longtime sparring partner Carl Icahn, suing the corporate raider last week in an ongoing fee fight involving CVR Energy.