Done Deal: Red Lobster Restaurant Chain Sold for $2.1 Billion

Golden Gate Capital, a private equity firm with experience in the restaurant industry, picks up the casual dining seafood chain from Darden Restaurants, Inc.

learn more about Laura Entis

By Laura Entis

Opinions expressed by Entrepreneur contributors are their own.

Today marks a new chapter for Red Lobster, the struggling seafood chain. Orlando, Fla.-based Darden Restaurants, Inc. has announced that it will sell Red Lobster to the private equity firm Golden Gate Capital in a $2.1 billion cash deal.

Darden, which also owns Olive Garden, LongHorn Steakhouse, Capital Grille and a number of other chains, said in December that it planned to sell Red Lobster, citing disappointing sales.

The Red Lobster deal is expected to close by the summer of 2015, Darden says.

Activist investors, most notably hedge fund Starboard Value LP, have challenged Darden's strategy, arguing that the restaurateur should instead try and improve business through cost reduction and a separation between its struggling mainstream casual dining restaurants -- including Red Lobster and Olive Garden -- and its financially healthy high-end restaurants, such as Capital Grille.

Earlier this week, Starboard Value warned Darden not to sell Red Lobster before a meeting with shareholders was called to discuss the sale. That meeting has yet to be scheduled.

Related: Everything Seems to Be Getting Worse for Company Behind Red Lobster, Olive Garden

"While we can see how a Red Lobster separation could be convenient and beneficial for management, this could be the absolute worst time to be selling Red Lobster," Starboard Value Managing Member Jeffrey Smith wrote in a letter to Darden's board of directors on Wednesday. Like Red Lobster, Olive Garden has been steadily underperforming in recent years.

With the sale of Red Lobster, Darden argues it can now focus on rejuvenating the Olive Garden brand. The company has already made various modifications to the Italian chain -- including a revamped menu and a redesigned logo -- to lure back customers.

"We believe this agreement addresses key issues that our shareholders have raised, including the need to preserve the company's dividend and regain momentum at Olive Garden," Clarence Otis, Darden's chief executive, said in a statement.

Golden Gate Capital is no stranger to the restaurant business. The San Francisco-based private equity firm has holdings in California Pizza Kitchen, and On the Border, a casual dining Mexican chain. It sold Romano's Macaroni Grill last year for $55 million.

Related: Olive Garden Undergoes 'Brand Renaissance' as Investors' Criticism Intensifies

Laura Entis
Laura Entis is a reporter for Fortune.com's Venture section.

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Business News

These Are the Most and Least Affordable Places to Retire in The U.S.

The Northeast and West Coast are the least affordable, while areas in the Mountain State region tend to be ideal for retirees on a budget.

Living

8 Things I Discovered While Working With Affluent Clients in New York City

After a decade working with the 1%, I learned that they have common traits.

Travel

6 Secret Tools for Flying First Class (Without Paying Full Price)

It's time to reimagine upgrading. Here's how to fly first class on every flight, business or personal.

Thought Leaders

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

This cautionary tale serves as a reminder for business leaders to adapt to the changing world of work and prioritize their workforce's needs and preferences.

Business News

I Live on a Cruise Ship for Half of the Year. Look Inside My 336-Square-Foot Cabin with Wraparound Balcony.

I live on a cruise ship with my husband, who works on it, for six months out of the year. Life at "home" can be tight. Here's what it's really like living on a cruise ship.

Business Solutions

This Comprehensive Microsoft Excel Course Can Turn You into a Whiz for $10

Master Microsoft Excel for less than the cost of your lunch with this top-rated course.