Darden Announces Sale of Red Lobster to Golden Gate Capital for $2.1 Billion

| May 21, 2014

Darden Restaurants, Inc. has announced that it has entered into a definitive agreement to sell its Red Lobster business and certain other related assets and assumed liabilities to Golden Gate Capital for $2.1 billion in cash.   
 
Darden expects to receive net cash proceeds, after tax and transaction costs, of approximately $1.6 billion, of which approximately $1.0 billion will be used to retire outstanding debt.  The remaining net proceeds of approximately $500 million to $600 million will be deployed for a new share repurchase program of up to $700 million in fiscal 2015.  In addition to strengthening the Company's credit metrics, with the lower debt levels and reduced outstanding share count, Darden expects to maintain its current quarterly dividend of $0.55 per share, or $2.20 annually. 
 
The agreement announced today is the culmination of a robust process to maximize the value potential of a sale or spin-off of Red Lobster and its real estate assets.  As part of this process, the Company and its advisors directly contacted a broad universe of potential financial and strategic buyers to purchase the Red Lobster business.  In addition, a significant number of real estate buyers were also contacted to facilitate attractive sale-leaseback financing for the purchase of the Red Lobster business.
 
In reaching the conclusion that this agreement is in the best interest of all Darden's shareholders, the Darden Board considered, among other things, that:
The all cash consideration provides Darden with immediate and certain value to reduce debt and support its capital return initiatives, including maintaining the Company's dividend, which Darden shareholders have stated is a priority. In the past five fiscal years, Darden has returned nearly $2 billion to shareholders through share repurchases and dividends;
 
The purchase price is approximately 9x Red Lobster's earnings before interest, taxes, depreciation and amortization (EBITDA) for the twelve months ending April 27, 2014;
The transaction maximizes the value of the Red Lobster business, while eliminating the risks and uncertainties to Darden and Darden shareholders relating to Red Lobster's turnaround or to separately monetizing the Red Lobster real estate assets;
 
The Company explored numerous separation alternatives for Red Lobster and the value potential of each, including (i) a spin-off of the Red Lobster business, (ii) a sale of the Red Lobster business, (iii) a spin-off of the Red Lobster operating company and a separate sale of its real estate, (iv) retaining the Red Lobster operating company and separating its real estate, and (v) retaining both the Red Lobster operating company and its real estate. The Board concluded that the agreement with Golden Gate Capital is the superior value creating alternative;
 
The agreement is structured to minimize closing risk. Golden Gate Capital has obtained committed debt financing, has fully executed a separate sale-leaseback agreement, and its offer is subject to customary closing conditions and regulatory approvals; and
The separation of Red Lobster from Darden will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities.
 
 As part of its strategic action plan, Darden has significantly reduced operating support costs, which reflects previously announced savings of at least $60 million annually beginning in fiscal year 2015 and additional savings identified during its work to separate Red Lobster.  As a result, despite meaningfully lower total revenue following the sale of Red Lobster, Darden does not anticipate an increase in its general and administrative (G&A) expenses as a percentage of sales.  G&A expenses are expected to be 5.0% of sales in fiscal 2014 and to remain at that level in fiscal 2015, excluding costs associated with implementation of the Company's strategic action plan and lobster aquaculture research and development project. 
 
In addition, as previously announced, the Company has retained Alvarez & Marsal North America to assist with Darden's operating support cost optimization efforts.  Based on work to date, Darden is confident that it can achieve a significant reduction in annualized G&A expenses as a percentage of sales within 12 to 18 months of the closing of the Red Lobster sale (excluding the lobster aquaculture research and development costs).
Darden's work with Alvarez & Marsal is ongoing and is also focused on identifying opportunities for direct operating cost reductions and revenue enhancements. 
 
Darden expects the sale of the Red Lobster business, which was unanimously approved by Darden's Board of Directors, to close in the first fiscal quarter of 2015.  
 

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