Darden Restaurants Wants to Shed Red Lobster

Source: Thinkstock
Another casual dining chain is looking for a buyer. Darden Restaurants Inc. (NYSE: DRI) said Thursday morning that it plans to hold a tax-free spin-off of its Red Lobster restaurants and that it would consider an outright sale of the chain. The company also said it would take other steps that will reduce its capital spending levels and return more cash to investors.

In May of 2012, casual dining chain P.F. Chang’s was taken private by Centerbridge Partners for $1.1 billion amid demands from shareholders for better returns. Another chain, O’Charley’s, had already been taken private in a deal worth $221 million.

Casual dining stores like Red Lobster have been pressured by the rise of so-called fast-casual restaurants like Chipotle Mexican Grill Inc. (NYSE: CMG) and Noodles & Co. (NASDAQ: NDLS). When the economy slowed way down in 2009, fast-food operators like McDonald’s Corp. (NYSE: MCD) and Yum! Brands Inc. (NYSE: YUM) got a boost from diners seeking cheap eats. As the economy recovered — slowly — the casual chains like Red Lobster and P.F. Chang’s ended up losing diners who wanted a better experience for just a little more money. The fast-casual places fit the bill, and the casual diners felt the pain.

Darden has come under pressure from activist hedge fund Barington Capital Group to break itself up into three groups, dumping Red Lobster and Olive Garden into separate businesses and retaining faster growing stores like LongHorn Steakhouse and Capital Grille. Red Lobster has more than 700 locations in the United States and Canada and had $2.6 billion in sales for its most recent fiscal year ending in June. It is a good candidate for a spin-off or sale if the price is right.

Shares of Darden were down more than 6% Thursday morning, at $49.71 in a 52-week range of $44.11 to $55.25.

Sponsored: Tips for Investing

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.