According to the Huffington Post on Friday, Darden Restaurants Inc. said it agreed to sell its Red Lobster seafood chain to private equity investment firm Golden Gate Capital for $2.1 billion cash. Darden, based in Orlando, Florida encountered objections from some shareholders who wanted to separate Red Lobster from the chain.
Red Lobster hasn't been contributing enough to Darden’s profits, and efforts to improve its sale weren't enough to satisfy investors. Darden expects the cash sale to Golden Gate Capital will generate $1.6 billion after taxes and transaction costs. The company plans to pay down debts which is about $1 billion. It will also buy back stock and continue paying its dividend.
Darden Restaurants also own Olive Garden and Longhorn Steakhouse. Those two restaurants have also experienced a decrease in sales, but Red Lobster's sales declined the most. Red Lobster's sales in the U.S. went down 8.8 percent during the first three months of 2014, worse than the 5.4 percent drop at Olive Garden. Management at Darden believes Olive Garden and Longhorn Steakhouse can still survive despite the fact that its shares fell 4 percent in yesterday's trading. If you have eaten at Red Lobster recently, you might have seen the expanded menu with non-seafood items to attract more customers. However, all efforts failed. Olive Garden has also expanded its menu. Darden sees more potential in fixing Olive Garden with its 830 locations.
Red Lobster first opened in 1968 in Lakeland, Florida and was the first seafood restaurant to gain nationwide prominence with 700 locations. Golden Gate did not announce plans to close any of Red Lobster's restaurants. However, it is likely that some of the restaurants will close but not on a large scale.
Darden's CEO Clarence Otis says Red Lobster is increasingly unable to attract the higher-income customers that Darden caters to with its more successful chains, which include Longhorn Steakhouse, The Capital Grille and Seasons 52.
For those who love seafood and enjoy going to Red Lobster, you can still do so as of now. The restaurant will not be owned by Darden but by Golden Gate instead.