Darden Restaurants announced Friday it will sell Red Lobster to investment firm Golden Gate Capital and shift its focus to re-brand the Olive Garden. Darden Restaurants, based in Orlando, has entered an agreement to sell the Red Lobster business, real estate assets, and liabilities for $2.1 billion in cash. The deal is expected to close in the first fiscal quarter of 2015, which is this summer.
The announcement in the Associated Press comes after last year’s news that the seafood chain is losing money and dragging the company further into debt. In the agreement, Darden will receive an estimated $1.6 billion in net cash proceeds, after tax and transaction costs. The company plans to use $1 billion to resolve outstanding debt and the remaining money will go towards a new share repurchase program of up to $700 million in 2015. The sale will strengthen the Company’s credit metrics, while maintaining the current quarterly dividend of $0.55 per share, or $2.20 annually according to the Company’s statement.
In spite of objection from shareholders to split Red Lobster from the brand, Darden began courting potential buyers for a sale or spin-off of Red Lobster and its real estate assets last year. The company’s press release touches on the extensive conversations with their shareholders about preserving the company’s brand while regaining momentum at flagship brand Olive Garden. The deal was not subject to shareholder approval, according to Darden.
Both Olive Garden and Red Lobster have reported business loss, as a result of the growing popularity of Chipotle and Panera Bread, restaurants that deliver quality food at a lower price and provide quicker service. Darden CEO Clarence Otis said Red Lobster has been unable to attract the higher paying customers of its more successful chains Longhorn Steakhouse, The Capital Grille, and Seasons 52.
Chuck Ledsinger, lead director of Darden’s board of directors, says the company is “committed to building on Darden’s leadership and will continue to focus on optimizing all of the Company’s assets, including its real estate.” Darden also owns Bahama Breeze, Eddie V’s, and Yard House.