ORLANDO, FLA. — Clarence Otis is no longer chairman for Darden Restaurants, Inc., and he also plans to step down as chief executive officer. He will continue serving as c.e.o. until a successor is appointed or until Dec. 31, whichever comes first. The announcement came on July 28, the same day Orlando-based Darden Restaurants said it had completed the sale of the Red Lobster business to Golden Gate Capital, a private equity investment firm based in San Francisco.
“I am proud to have been a part of Darden’s significant growth and expansion, which has enabled us to reach new consumer segments and markets and create significant long-term shareholder value,” Mr. Otis said. “With the Red Lobster sale complete and progress on our Olive Garden brand renaissance and other strategic priorities under way, this is the right time for me to step down.”
The announcement concerning Mr. Otis came a little more than four months after a March 26 letter from investor Barrington Capital Group, L.P., New York, said the group had lost confidence in the ability of Mr. Otis to lead Darden. The letter cited the “rapidly deteriorating financial performance” of Darden.
Darden’s board of directors has appointed Charles A. Ledsinger Jr., the company’s independent lead director, as independent non-executive chairman of the board, effectively immediately. Mr. Ledsinger and the board’s nominating and governance committee will lead the search to identify Mr. Otis’ successor as c.e.o. An amendment to corporate governance policies has separated the roles of chairman and c.e.o.
New York-based Starboard Value LP, an investment adviser and Darden Restaurants shareholder, issued a statement July 29.
“The overdue retirement of Clarence Otis is obviously in the best interest of Darden and its shareholders,” said Jeffrey C. Smith, managing member, c.e.o. and chief investment officer of Starboard Value. “It is surprising to us that it took this long. It is a shame for all Darden shareholders that this change happened only after the board sanctioned the destruction of a billion dollars in shareholder value by approving the Red Lobster sale against the vehement objections of its shareholders."
Mr. Smith said Darden Restaurants still needs to overhaul its board.
“This board has proven over an extended period of time that it is unable to respectfully and capably represent the best interests of the shareholders they were elected to represent and cannot be trusted to make the incredibly important decision as to the selection of the next c.e.o of Darden,” he said.
Mr. Smith also commented on Darden saying July 28 that its board of directors expects to nominate nine of its independent directors at an annual meeting Sept. 30.
“We view the company’s decision to nominate 9 of 12 director candidates as a transparent tactic designed to manipulate and maintain the problematic status quo majority following the 2014 annual meeting,” he said.
Mr. Otis joined Darden in 1995. He was appointed c.e.o. in 2004 and chairman of the board in 2005. During his tenure the company grew from 1,381 restaurants with $5.2 billion in annual sales to more than 2,200 restaurants with more than $8.7 billion in annual sales by the end of fiscal year 2014.
After the Red Lobster sale, Darden Restaurants now owns and operates more than 1,500 restaurants that generate about $6.3 billion in annual sales. The company’s restaurant brands include Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Yard House.
The sale of Red Lobster is consistent with Darden’s strategy of increasing its focus on its Olive Garden brand and preserving its dividend, according to the company. The acquisition of about $2.1 billion in cash includes the Red Lobster business and certain other related assets and assumed liabilities. Darden expects to use about $1 billion of the net cash proceeds to retire outstanding debt. The remaining net proceeds of about $500 million to $600 million are expected to be used for a new share repurchase program of up to $700 million in fiscal 2015.“We are pleased to have completed the sale of Red Lobster as planned,” Mr. Otis said. “The completion of the transaction marks an important milestone in the actions we are taking to improve our operations, reduce costs and focus on opportunities with the highest value-creating potential.”