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Darden Prepares to Cast Off Red Lobster

Lopdrup to lead separation efforts.

As part of a larger plan with the stated goal of driving shareholder value, Darden announced plans to spin off its Red Lobster business into a separate entity. In addition, Darden plans to suspend new unit growth for its Olive Garden concept and limit new unit growth at its LongHorn Steakhouse chain. The multi-concept operator projects new unit growth in its Specialty Restaurant Group will continue at a pace modestly below its 2013 levels and Darden will forgo acquisitions of additional brands for the foreseeable future, according to a company release.

Kim Lopdrup, currently president of Darden's Specialty Restaurant Group and New Business, will serve as chief executive officer of Red Lobster and will help lead the separation. Lopdrup served as president of Red Lobster from 2004 to 2011. Harald Herrmann, president of Yard House, replaced Lopdrup as president of Darden's Specialty Restaurant Group in January. Salli Setta, who was appointed as president of Red Lobster in July, will continue in that role.

"While we are highly confident the future is bright for both Red Lobster and Darden excluding Red Lobster, we also recognize that the operating priorities, capital requirements, sales and earnings growth prospects, and volatility profiles of the two parts of the business are increasingly divergent," said Clarence Otis, Darden's chairman and CEO. "By establishing two independent companies, a separation will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities."

Red Lobster has 705 restaurants in the United States and Canada and generated approximately $2.6 billion in sales for its 2013 fiscal year. In explaining the decision to spin off the full-service seafood chain, Darden cited changing consumer dynamics, which have resulted in Red Lobster's priorities and operating support requirements to differ from the company's other brands. By spinning off Red Lobster, the chain will be able to better pursue marketing and operating strategies that are more tailored to the needs of those consumers who fit its core guest profile, according to a company statement.

"At our other brands, we are working to increase visits from those who love what we offer today, while also attracting new guests who have other expectations," Otis said. "To achieve this broader reach, we are fundamentally reshaping and enhancing the experiences we provide, and making needed investments in new, shared marketing, technology and operational capabilities. By separating a business whose strategy and operational requirements diverge substantially from those of our other brands, we will be able to more aggressively and effectively pursue these initiatives and create value for our shareholders."

Darden also said casting off its Red Lobster concept will be subject to certain customary conditions, including final approval by the company's board of directors and other regulatory steps. Darden expects the separation transaction to close early in its 2015 fiscal year, which begins May 26, 2014.