Red Lobster Case Summary

On Monday, September 22, 2014, a Darden Restaurant shareholder filed a suit against the Darden board of directors on grounds that the sale of Darden’s Red Lobster division was harmful. The suit was filed in Florida by Teamsters Local 443 Health Services and Insurance Plan of Connecticut. This lawsuit is the second of two lawsuits that that Teamster has brought against Darden, the first was a suit for violating company bylaws. Teamsters alleged that Darden mislead the shareholders when it informed the shareholders and the public that Red Lobster was suffering financial troubles and needed to be sold. While information was being spread about the decline in business for Red Lobster, Red Lobster in June 2014, was seeking $425 million in financing claiming that Red Lobster’s troubles were only temporary and no need to worry. In fact, they claimed that their earnings would increase to 200 million within the year. (Jannarone)
Barrington Capital and Starboard Value have been urging Darden to split into two companies, separating the real estate as a third. Instead of accepting the shareholders proposal, Darden decided to sell Red Lobster in order to dodge the more drastic business model change that Barrington and Starboard were suggesting. The board of directors decided to sell because that allowed them to retain their roles at a larger company, whereas, if they were to split the company up, the powers would be split between three different board of directors. According to the CNBC article, “The Board knew at all relevant times that it was selling Red Lobster at an artificially low price to protect the Board member’s