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May 16. 2014 9:14PM

Investment group to buy Red Lobster for $2.1 billion

NEW YORK — Darden Restaurants has agreed to sell the Red Lobster seafood-restaurant chain to Golden Gate Capital for $2.1 billion, giving it an injection of cash and time to focus on reviving growth in its Olive Garden business.

The sale will result in about $1.6 billion in proceeds, of which about $1 billion will be used to retire debt, Orlando, Florida-based Darden said Friday in a statement. The remainder will fund a share buyback program of as much as $700 million.

The move caps a quest to free Darden of the underperforming Red Lobster seafood restaurants that Chief Executive Officer Clarence Otis announced in December. While the plan is drawing opposition from activist investors who say it destroys value, Otis says it will help the company focus on turning around the Olive Garden chain, its largest revenue generator.

“This certainly appears to be a fairly priced transaction for the company, satisfying its needs of getting rid of Red Lobster, taking the distraction away in that regard,” Robert Derrington, an analyst at Wunderlich Securities, said in an interview. “They should be able to focus on improving the business, but the industry is very challenged.”

Red Lobster’s same-store sales, a key measure of a chain’s strength that excludes revenue from new restaurants, have declined in seven of the past eight quarters. The brand had limited growth potential because many of its customers are elderly and don’t socialize often.

At the same time, the broader casual-dining industry has been struggling with shaky consumer confidence and inroads from fast-food restaurants. Last year, sales at full-service restaurants rose just 2.8 percent, compared with a 3.5 percent gain for fast-food places and other limited-service eateries, according to Chicago-based research firm Technomic Inc.

That trend has taken a toll on Olive Garden, an 800-store chain known for large portions of basic Italian food. The brand recently introduced a hamburger and smaller, tapas-style plates of food to attract younger diners. The chain’s chefs are trying to latch on to newer trends in food and experimenting with ingredients such as polenta, capers and olives.

Golden Gate, a private-equity firm based in San Francisco, manages more than $12 billion in assets and has made restaurant and retail investments in companies including California Pizza Kitchen, Eddie Bauer and Zale. Golden Gate was founded in 2000 by dealmakers from private-equity firm Bain Capital.

Golden Gate has agreed to sell about 500 Red Lobster locations to American Realty Capital Properties Inc. for about $1.5 billion and then lease back the spaces, according to a separate statement Friday.



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