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The new math of the Red Lobster deal

Numbers supposedly don’t lie, but two stakeholders in the Red Lobster deal are sure they can mislead. They’re trash-talking Darden Restaurants for how it valued Red Lobster in the pending sale of the casual-dining granddaddy to Golden Gate Capital.

No one challenges Darden’s calculation of Red Lobster’s annual EBITDA at $115 million. The agreed-upon purchase price is $2.1 billion, or nine times EBITDA. Or so Darden says.

Try 5.5 times, groused Barington Capital, the investor that led the chanting for a spin-off of Darden’s greybeard brands.  Golden Gate will instantly recoup about $1.5 billion of its outlay for Red Lobster by selling and leasing back the real estate under most of the seafood houses, reducing the actual price in Barington’s eyes to a mere $600 million.

Barington said that other mature casual-dining brands have sold at multiples of nine to 10 times EBITDA, making Red Lobster look like a steal in comparison.

“It is unconscionable that the Darden board would allow the company to sell its Red Lobster business for what amounts to a ‘fire sale’ price,” particularly when shareholders wanted a yea or nay on the deal, Barington CEO James Mitarotonda blasted in a statement on the sale. He called the agreement with Golden Gate “unconscionable.”

Starboard Value, another investment group long at odds with Darden, all but spat before slamming the deal as “destructive and self-serving,” with a price that “woefully undervalues Red Lobster and its real estate.”

It had been pressing Darden to convene a special meeting where shareholders could vote on whether or not to spin off Red Lobster at any price.

“If the company was intending to ignore the will of the shareholders and rush to do a transaction, you would have at least thought that it would have been a highly opportunistic transaction at a substantial premium to the underlying value of Red Lobster,” said Starboard CEO Jeffrey Smith. “However, that is clearly not the case.”

Darden has not responded to the challenges from the two groups.

Separately, shopping center owner American Realty Capital announced that it will sell its retail complexes to Blackstone Group for $1.95 billion. About $1.5 billion of the proceeds will then be used to purchase the real estate under 500 Red Lobsters from Golden Gate.

All Red Lobsters are company-owned and operated.

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