Shareholders Sues Darden Over Bylaw Changes; Darden To Vigorously Defend : WSJ

(RTTNews) - A group of shareholders filed a lawsuit on Friday against Darden Restaurants Inc. (DRI), alleging that recent changes to its corporate bylaws are designed to frustrate stockholders' right to vote on a plan to shed its Red Lobster chain, the Wall Street Journal reported on Saturday.

The lawsuit was filed by pension funds for the City of Birmingham, Ala., as a potential class action on behalf of other stockholders.

The Journal said that the lawsuit seeks to invalidate changes made last month to the company's bylaws.

Darden now requires shareholders submitting proposals or nominating directors to disclose more information about their plans, their compensation and their discussions with other shareholders. It also gave the board more power over the timing of shareholder meetings.

Specifically, the rules now allow Darden's board to adjourn any meeting indefinitely and ignore any nonbinding shareholder proposals that aren't submitted in accordance with the "new and onerous" requirements, the lawsuit said.

In December 2013, Darden said it was looking to sell or spin-off its struggling Red Lobster chain, a plan it says doesn't require a shareholder vote.

Darden reportedly said on Saturday that the lawsuit has "no merit," and it will "vigorously defend" against it.

In early-April, Investment firm Starboard Value LP, which holds a 5.5 percent stake in restaurant operator Darden Restaurants, noted that Darden's plan to spin off the Red Lobster chain was the wrong spin-off, at the wrong time, and for the wrong reasons.

Starboard objected to the proposal and urged Darden to delay the separation and seek comprehensive alternatives.

New York-based Starboard had said that it issued an investor presentation expressing its serious concerns with the proposed separation of Red Lobster. The activist investor added that a special meeting of Darden's shareholders was necessary to provide shareholders with a forum to express their views and influence the future of Red Lobster "before it was too late".

According to Starboard, Darden appeared to be intent on completing the Red Lobster separation prior to the 2014 annual meeting of shareholders, when all directors are up for election.

On 11th April, Starboard announced that Glass Lewis & Co., LLC, a leading independent proxy voting advisory firm, recommended that Darden shareholders CONSENT on Starboard's WHITE request card to Starboard's solicitation to call a Special Meeting of Darden shareholders.

At the Special Meeting, shareholders would be asked to consider a non-binding resolution urging the Darden Board not to approve any agreement or proposed transaction involving a Red Lobster separation or spin-off prior to the 2014 Annual Meeting unless such agreement or transaction would require shareholder approval.

Glass Lewis noted that although it typically believes strategy and organizational decisions are best left to management teams and boards of directors, in this case Glass Lewis believes Starboard has made a compelling case that management and the Board have failed to enhance shareholder value relative to peers; are pursuing an initiative that threatens to destroy shareholder value; and have not proven that they should be given complete deference with respect to strategic matters.

Separately, Starboard announced Friday that Institutional Shareholder Services (ISS), a leading independent proxy voting advisory firm, has recommended that Darden shareholders CONSENT on Starboard's WHITE request card to Starboard's solicitation to call a Special Meeting of Darden shareholders.

ISS' Vote Recommendation: "Consent FOR the proposal to call a special meeting, as it will help ensure shareholders have the opportunity to ratify or reject a potentially significant and irreversible strategic action about which there is currently significant uncertainty."

ISS concluded the strategic questions appear sufficiently weighty, particularly in the context of an irreversible strategic decision, that shareholder consent FOR the proposal to call a special meeting is warranted.

Darden Restaurants issued a statement regarding an April 11 report by Institutional Shareholder Services or "ISS". The ISS report relates to whether Darden shareholders should submit consents to Starboard Value LP and its affiliates in connection with Starboard's efforts to call a Special Meeting of Darden shareholders.

Although Darden disagreed with ISS's conclusion, Darden said that the ISS analysis importantly recognized the validity of the position that "shareholders have a diversity of opinions on what the company should do, and that direct engagement with the board and management, rather than a single yes/no vote on a nonbinding proposal, is a more robust process for understanding 'what shareholders want'".

Darden said it has been in ongoing discussions with shareholders and value the feedback it has received.

In addition, Darden said that the Glass Lewis report did not give appropriate consideration to the facts, including Darden's actual operating and financial performance and value creation initiatives, and the assertions regarding Darden's record of engagement are demonstrably false. Further, the conclusions reach far beyond the question of whether to call a Special Meeting, which is currently the only matter before Darden shareholders. Darden is disappointed that Glass Lewis issued this report without meeting any members of Darden's Board of Directors or management team.

Separately, Darden announced Friday that leading independent proxy advisory firm, Egan-Jones Proxy Services, recommended that Darden shareholders should revoke on Darden's BLUE revocation card and reject efforts by Starboard Value LP and its affiliates to solicit consents in connection with Starboard's efforts to call a Special Meeting of Darden shareholders.

Egan-Jones said, "We believe that support for voting the Management ballot is merited and that voting the Management ballot (BLUE REVOCATION CARD) is in the best interest of the Company and its shareholders."

Meanwhile, Darden noted that it agreed with the conclusion of Egan-Jones.

"If Darden shareholders have already submitted a white written request card to Starboard supporting the call of a Special Meeting, they can revoke such consent by submitting a BLUE revocation card to the Company today. If shareholders have not submitted a white written request card to Starboard, shareholders may nevertheless communicate that they do not believe a Special Meeting is necessary or express their opposition to calling a special meeting by submitting the BLUE revocation card to the Company," Darden said.