Starboard Value LP (together with its affiliates, "Starboard"), one of the largest shareholders of Darden Restaurants, Inc. ("Darden" or the "Company") (DRI), with beneficial ownership of approximately 8.8% of the outstanding common stock of the Company, announced today that its director nominees have issued a letter to Darden shareholders in connection with the upcoming 2014 Annual Meeting of Shareholders to be held on October 10, 2014.
The full text of the letter follows:
AN IMPORTANT MESSAGE FROM STARBOARD'S DIRECTOR NOMINEES
September 19, 2014
Dear Fellow Darden Shareholders:
We are the nominees on Starboard's WHITE proxy card for election to the Board of Directors of Darden Restaurants, Inc. at the upcoming 2014 Annual Meeting. We would like to tell you why we are so excited to participate in Darden's future, and to share with you our collective thoughts on the significant opportunities that lie ahead. We hope that by the time you have finished reading this letter, you will recognize our deep-rooted passion and desire to bring back the inspiration, culture, and core values that Bill Darden and Joe Lee instilled at Darden many years ago. It would be our honor and privilege to represent your best interests on the Darden Board. We stand ready, willing, and able to work with Darden's dedicated employees to create substantial value for the benefit of all shareholders.
Our collective backgrounds, skill sets, and leadership experiences have prepared us well for the important opportunity at Darden. Among us are restaurant industry veterans who have achieved extraordinary results, having been founders, CEOs, CFOs, executives, and board members of Darden, Olive Garden, Brinker, T.G.I. Friday's, IHOP, Smith & Wollensky, Burger King, Romano's Macaroni Grill, Taco Bell, Pizza Hut, Cosi, Corner Bakery, Quality Meats, Maloney & Porcelli, and Tim Horton's. Additionally, we have valuable experience in real estate, turnarounds, and corporate governance. We have collectively spent most of our professional careers developing brand and growth strategies, greatly improving restaurant operations, and executing turnarounds. We have complementary skill sets and perspectives directly relevant to Darden's business and current challenges. We have proven track records of success. Of critical importance to Darden, we have extensive experience successfully recruiting transformational CEOs and initiating shareholder-friendly compensation programs.
We fully appreciate the approximately 150,000 restaurant and field-level employees who serve approximately one million meals per day to customers across Darden's brands. We are all extremely excited at the prospect of helping a company that already has all the ingredients to regain the strength and prominence it once enjoyed, and to help you, the true owners of the company, regain your pride in owning a great company.
We believe Darden has incredibly strong brands. We love the iconic Olive Garden, but feel its recent performance has not lived up to the high standards guests have come to expect, and should expect. Fortunately, there is a strong base of passionate employees and passionate customers that contribute to Olive Garden's high average annual sales per restaurant of approximately $4.4 million. As we, and management, embark on the journey to reenergize this loyal base, we are sure that the improvements will "nourish and delight" more and more guests, as well as satisfy you, the company's shareholders. In addition to Olive Garden, Darden owns LongHorn, which is already a leading national brand and has the potential to truly live up to its vision as "America's Favorite Steakhouse", and the Specialty Restaurant Group, which has five emerging and popular high growth brands, each with loyal followings and significant potential. Darden also has highly valuable real estate assets – an order of magnitude more than any other company in the casual dining industry – which could be separated for the benefit of all shareholders. These fantastic brands and assets, along with meaningful opportunities such as margin improvements and the exploration of a franchising program, give us confidence that Darden has a bright future ahead of it, and that shareholders can see substantial value creation. However, this can only be accomplished with the right leadership.
WE ARE COMMITTED TO PROVIDING STRONG, INDEPENDENT, AND OBJECTIVE OVERSIGHT
Collectively, we have served on over 70 public company boards. We understand our fiduciary duties to shareholders. As independent-minded business leaders, we intend to add tremendous value to the discussions and debates in the boardroom. We have strong reputations and have achieved outstanding results in our chosen fields. We would not have put our reputations on the line to simply rubber-stamp anyone's ideas or plans. We are absolutely confident that the best ideas will win in the boardroom and within management. We all understand that a board's role is not to operate the company, but to hire a fantastic CEO and put in place the proper incentive and governance structures to ensure that management's interests and objectives are properly aligned with the best interests of shareholders. Each of us is unequivocally committed to providing strong, independent oversight at Darden. Our collective board experiences have taught us a fundamental understanding of boardroom dynamics, and the critical importance of striking the right balance between collegiality and constructive debate to ensure diverse and disparate views are heard and encouraged.
Shareholders have a critical opportunity at the upcoming 2014 Annual Meeting to elect the best possible Board to lead the transformation of Darden. We will work tirelessly for the company and for you.
Moreover, in order to successfully transform Darden, the first step needs to be the hiring of a world-class CEO to significantly improve the culture and operations of the company. From the first day of our Board service, we would focus on recruiting the best CEO possible. We say "recruiting" because the ability of a board to hire a fantastic and transformational CEO is an acquired skill that requires not only choosing the right person, but recruiting that person and thoughtfully discussing the opportunity and responsibility he or she would have as the leader of the company. Collectively, we have recruited an external CEO over 30 times in our careers as board members of public companies. For Darden, we will consider both internal and external candidates, with the only goal being to recruit the best CEO for the job, and we believe that our extensive experience and perspectives in this area will be critical for recruiting and hiring the best person.
WE ARE LOYAL ONLY TO SERVING THE BEST INTERESTS OF ALL SHAREHOLDERS
Contrary to recent suggestions by Darden in the heat and noise of a contest, none of us has taken any so-called "Loyalty Oath" to Starboard. Independence, integrity, and our reputations are critical for all of us. We certainly have not pledged to implement a pre-set agenda as board members, nor has Starboard ever asked us to do so. The board does not represent management or any single shareholder, but all shareholders. As fiduciaries, our only "loyalty" would be towards serving the best interests of all shareholders of the company. We, and Starboard, fully understand and expect that each of us will independently determine what we think is best for the company and its shareholders. Nothing less is acceptable.
We have been working together for many months, along with our advisors, to develop a comprehensive turnaround plan for Darden. The transformation plan is a result of a collective team effort and does not represent any one person's agenda for Darden. Each of us has already put a tremendous amount of work into helping to develop a plan that we believe will transform Darden for the benefit of Darden's shareholders, guests, and employees. For Darden to suggest that we would implement this plan before verifying any of its elements is simply absurd. As we very clearly laid out in our presentation, "If elected, [we] will immediately begin working with Darden's management and advisors to verify the opportunities discussed in [the] presentation." As with all 70 of the public company boards on which we've served, only after we are certain that changes can be implemented effectively and are in the best interest of all shareholders would we implement those changes.
DARDEN HAS LOST ITS WAY
"You just have to have good people if you are going have a good operation, without them you are lost." – Bill Darden
Darden has a rich history centered around experienced and passionate restaurant operators that led through their spirit and desire for success. Beginning with Bill Darden and then Joe Lee, Darden's restaurants operated with pride and flawless execution, exuding best-in-class operating performance. We are fully committed to restoring Darden's culture of success while fairly and objectively representing the best interests of all shareholders.
The boardroom needs to set the tone at the top to re-establish Darden's core values. We must change Darden's management approach away from its current corporate-centric philosophy, to a vastly improved restaurant-centric philosophy. We recognize that Darden's employee base is its greatest strength – we plan on improving the focus and culture of the organization to empower the people and drive success.
For example, Bill Darden and Joe Lee inspired a sense of ownership from the General Managers to the dishwashers and made sure Darden's hundreds of thousands of employees were excited to create an unmatched guest experience. Creating a sense of ownership is imperative to generating outstanding performance from customer-facing restaurant General Managers. A much greater emphasis needs to be placed on empowering and respecting the General Managers before Olive Garden can be truly transformed. Darden must properly incentivize its General Managers so they can focus on what's truly important – providing great food and service so that our valued guests visit us more often. By placing paramount importance on the General Manager position, and providing effective training led by true restaurant operators, Darden succeeded in the past and can succeed once again.
EACH OF US BRINGS UNIQUE AND COMPLEMENTARY SKILL SETS THAT WE BELIEVE WILL PROVE INVALUABLE TO DARDEN AS IT EMBARKS ON ITS LONG OVERDUE TRANSFORMATION
Although each of us bring different skill sets and expertise to the table, we share a common goal for Darden – to ensure that your Board represents the best interests of all Darden shareholders by creating substantial shareholder value, maintaining and strengthening the investment-grade rating and dividenView gallery
We have all had successful careers, have delivered outstanding results, and have strong reputations in our chosen fields, and all of us have served on public company boards. As you can see below, we believe that each of us brings a unique perspective and set of skills that is directly relevant to the task at hand.
Betsy Atkins (no relation to Shan Atkins) has served on 24 public company boards and has been a CEO four times, dramatically scaling, building, and repositioning businesses. In addition to her extensive experience recruiting CEOs and putting into place best-in-class corporate governance structures, she has substantial expertise in digital marketing, social media, mobile enablement, and loyalty programs, areas where Darden is clearly in need of help.
Shan Atkins (no relation to Betsy Atkins), a CPA by background, has had a rich career in the retail and consumer space, and has been recognized as an expert on executive compensation and corporate governance, two areas where Darden is in need of significant improvements. In her most recent role as a director of Tim Horton's, the company has substantially outperformed peers, and last month announced a transformational $13 billion merger with Burger King.
Jean Birch has a tremendous amount of restaurant industry experience, having previously served as President of IHOP Restaurants, Romano's Macaroni Grill, and Corner Bakery Cafe. Additionally, she held senior positions at Taco Bell and Pizza Hut. Her expertise in restaurant operations, branding, and marketing, along with her extensive experience running franchised restaurant systems, can be invaluable to Darden as it looks to reinvigorate its core brands and considers creating value through an expanded franchising program.
Brad Blum, the longest tenured President in Olive Garden's recent history, led Olive Garden through its very successful turnaround in the 1990s and early 2000s, and served as the Vice Chairman of Darden's board, eventually leaving to become CEO of Burger King in order to turn around their business. After a successful career as a senior executive inside General Mills' cereal division, where he was responsible for developing Cinnamon Toast Crunch and Total Raisin Bran, among others, Brad was asked to transform Olive Garden, which at the time was facing even more severe declines than today. The restaurant-, guest-, and employee-focused model he instilled led to a record 57 consecutive quarters of positive same-store-sales growth.1
Jim Fogarty, a former Managing Director of Alvarez & Marsal for 15 years specializing in turnarounds, is a seasoned executive who has served as an executive officer of numerous public consumer and retail companies, including as CEO of American Italian Pasta Company and Charming Shoppes, and has been the CFO of Levi Strauss. His expertise in supply chains and turnarounds is directly relevant to Darden's current operations. Over his career, Jim has taken out billions of dollars of costs while protecting the front ends of businesses, enabling profitable growth.
Cindie Jamison is a seasoned executive, having served as CFO and COO of several public companies, and currently serves as Chairman of Tractor Supply Co., which has outperformed the S&P by over 1,200% since she joined the Board in 2002. Her expertise as CFO in numerous turnaround situations is incredibly relevant to Darden's current operations, and she is a recognized expert on audit committee and executive compensation best practices.
Bill Lenehan is a real estate expert who is the former CEO of MI Developments (now Granite REIT), a publicly traded single-tenant REIT, where Bill put into place a strategic plan that has led to total shareholder return of approximately 150%.2 Bill currently serves as a director of several publicly traded REITs.
Lionel Nowell is a financial expert who previously served as Treasurer of PepsiCo, CFO of The Pepsi Bottling Group, CFO of Pillsbury North America, and as a senior executive at Pizza Hut. He currently serves as a Director and member of the Audit Committee of American Electric Power (Chair), Reynolds American Inc., and Bank of America Corporation, three public companies with a combined market capitalization of more than $200 billion. He was recognized by the National Association of Corporate Directors as one of the most influential people in the boardroom and corporate governance.
Chuck Sonsteby served as CFO of Brinker International from 2001 to 2010 and helped to develop Brinker's historic casual dining turnaround plan, including operational improvements expanding margins by more than 300 basis points, divesting non-core brands, implementing a substantial domestic and international franchising program, and divesting company-owned real estate – all areas where we believe Darden has significant opportunities. He has been named one of "America's Best CFOs" by Institutional Investor magazine.
Alan Stillman is a legendary restaurant visionary, founder, and CEO who created the T.G.I. Friday's and Smith & Wollensky concepts, and served as the Chairman and CEO of the publicly traded Smith & Wollensky Restaurant Group. He is also the founder and Chairman of Fourth Wall Restaurant Group, which owns Maloney & Porcelli, Quality Meats, Quality Italian, and the flagship Smith & Wollensky restaurant.
In addition, as outlined more than a month ago in Starboard's proxy statement, if we are all elected, we plan to add back up to two of the incumbent directors, while reducing Board compensation so that there is no added expense from a slightly larger board. It is critical that any incumbents added back to the Board be those most qualified, who can provide the most valuable contributions and provide the right kind of continuity, rather than incumbents whose track records are most questionable or whose skill sets are of little relevance to Darden's current challenges.
WE WILL WORK TIRELESSLY FOR ALL SHAREHOLDERS
We strongly believe that by electing us to the Darden Board, you will be taking the first step towards a healthier company with a safer dividend, a more conservative financial profile, improved operating results, a reinvigorated employee base, more satisfied customers, and a significantly higher stock price.
WE BELIEVE DARDEN HAS AN INCREDIBLY BRIGHT FUTURE
Thank you for taking the time to listen to our thoughts and learn about our deep passion and commitment. Our backgrounds have prepared us well. We are uniquely qualified to oversee a successful turnaround and transformation of Darden.
We are excited by the opportunity at Darden and are committed to working as hard as possible to represent the best interests of all Darden shareholders.
Please vote the enclosed WHITE proxy card to allow us the opportunity to restore Darden to the prominence it deserves.
Respectfully,
Betsy S. Atkins
Margaret Shan Atkins
Jean M. Birch
Bradley D. Blum
Peter A. Feld
James P. Fogarty
Cynthia T. Jamison
William H. Lenehan
Lionel L. Nowell, III
Jeffrey C. Smith
Alan N. Stillman
Charles M. Sonsteby
Vote for Starboard's 12 highly qualified, independent nominees on the WHITE proxy card today.
If you have any questions or require any assistance with your vote, please contact Okapi Partners LLC at the numbers listed below.
Starboard's publicly filed investor materials can be accessed at www.shareholdersfordarden.com.
About Starboard Value LP
Starboard Value LP is a New York-based investment adviser with a focused and differentiated fundamental approach to investing in publicly traded U.S. small cap companies. Starboard invests in deeply undervalued small cap companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.