This post is part of the On the Margin blog.
Starboard Value LP, a New York investment fund, made an activist investment in Darden Restaurants Inc. in 2013, and started a proxy fight the next year.
That fight drew major, nationwide attention in September, when Starboard unleashed a series of recommendations for Darden in a report nearly 300 pages long. The report included such changes as breadstick control and salting the pasta water. But it also included some big things, like selling the real estate or spinning off some of the chain’s seven concepts.
In the 18 months since, Darden has done an impressive job of improving operations and profits, and getting Olive Garden back in the win column — enough so, apparently, that Starboard CEO Jeff Smith stepped down from the Darden board as Starboard reduces its stake in the company.
Darden’s stock, which had been stuck in neutral for the previous two years, is up 40 percent since before Starboard made its initial filing — and that doesn’t include the additional value to shareholders from the spinoff of some of Darden’s real estate into Four Corners Property Trust.
Yet Darden during the Starboard era didn’t quite do everything on that 300-page report.
For one thing, while Olive Garden apparently improved its breadsticks and managed them better, according to the Wall Street Journal it still doesn’t salt the pasta water — giving in to concerns about the warranties on the pots used to boil the pasta.
And executives also don’t sound all that eager to sell any of the chain’s smaller brands, at least based on comments they made on the earnings call this week.
“We laid out our long-term strategic framework,” Darden CEO Gene Lee said Tuesday. “We believe the portfolio we have today is a great portfolio to achieve that.”
He added that the company’s strategic plan includes taking advantage of its massive scale to reduce overall general and administrative costs.
“As we look ahead, we believe moving forward with what we’re doing and the path we are on is the right path,” Lee said.
Darden recently reorganized its operations, eliminating the Specialty Restaurant Group that had overseen its five smaller concepts — The Capital Grille, Eddie V’s and Yard House will report directly to Lee, while Dave George, the president of Olive Garden, will oversee Seasons 52 and Bahama Breeze.
That was clearly a signal that it had no plans to spin off that group — you can’t sell the Specialty Restaurant Group if it doesn’t exist.
Still, while the clear priority for Starboard and Darden was to spin off some of its real estate, the potential for a spinoff of other restaurants was a major topic during the investor uproar of 2013 and 2014. A number of analysts and investors pushed the idea.
But improving sales and profits tends to cure a lot of ills, especially investor pressure.