Darden sells Red Lobster for $2.1 billion

Darden Restaurants announced it will 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. 

"Over the past months, we have had extensive conversations with our shareholders about Darden and the company's strategic direction. By enabling us to bolster the company's financial foundation and increase our focus on the Olive Garden brand renaissance program, we believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the company's dividend and regain momentum at Olive Garden," said Clarence Otis, CEO of Darden.

In addition to strengthening the company's credit metrics, the sale of Red Lobster will  lower the company’s debt levels and reduce the outstanding share count. Darden expects to maintain its quarterly dividend of 55 cents per share, or $2.20 annually, after the sale is complete.

Investors were not impressed with the deal, shares of Darden Restaurants tumbled more than 4% to $48.51 on Friday (May 16) following the news.

"Red Lobster is an exceptionally strong brand with an unparalleled market position in seafood casual dining," said Josh Olshansky, managing director at Golden Gate Capital."Red Lobster is exactly the type of company in which we seek to invest given its great brand profile and strong management team. We see significant opportunities for future growth by partnering with Kim Lopdrup and the management team to support the long-term success of Red Lobster."

Darden expects the sale of the Red Lobster business, which was unanimously approved by Darden's board to close in the first fiscal quarter of 2015.

The deal is subject to customary closing conditions and regulatory approvals and is not subject to a shareholder approval condition or a financing condition. 

Golden Gate Capital has obtained committed debt financing from Deutsche Bank AG, Jefferies and GE Capital, and has fully executed a separate $1.5 billion sale-leaseback agreement with American Realty Capital Properties Inc., the proceeds of which will be used to support the financing of Golden Gate Capital's purchase of Red Lobster.