ORLANDO/LOS ANGELES (Reuters) - Activist shareholder Starboard Value LP won its standoff with Darden Restaurants Inc (>> Darden Restaurants, Inc.), convincing shareholders to replace the entire board of the Olive Garden parent, a rare victory for dissident investors.
The election of Starboard's 12-director slate, announced Friday at Darden's annual meeting, was a feather in the cap for the New York hedge fund, Darden's second-largest investor with an 8.8 percent stake.
It was a stinging defeat for Darden, which this year alienated investors by brushing off their vote requesting a special meeting to debate the company's then-proposed sale of its struggling Red Lobster chain.
The "extraordinary" and "totally self-inflicted" loss for Darden comes as no surprise given Darden's "tone deafness" to investor wishes regarding the Red Lobster sale, said Charles Elson, director of the Weinberg Center for Corporate Governance in Delaware.
"It was kind of done deal, wasn't it?" agreed Karl Sooder, a Darden investor and University of Central Florida marketing professor, who attended Darden's meeting in an Orlando hotel conference room.
The board sweep, which is based on a preliminary vote count, is notable because of Darden's large size, experts said. Darden is the biggest U.S. operator of full-service restaurants with $8.55 billion in 2013 sales.
Some smaller U.S. companies recently have suffered similar fates.
For example, shareholders in ALCO Stores Inc (>> Alco Stores Inc) in September replaced the full board at the retailer that serves small U.S. communities. Last year, investors replaced the whole board at Morgans Hotel Group Co. (>> Morgans Hotel Group Co.)
Shares in Darden jumped 2.5 percent to a session high of $50.52 and were at $49.30 in midday trading on the New York Stock Exchange.
"I feel great and really excited," Starboard Chief Executive and newly elected Darden director Jeffrey Smith told Reuters on the sidelines of the annual meeting.
"Darden has all the right ingredients to regain the strength and prominence it once enjoyed," Smith said in a joint statement with the company.
Starboard last month unveiled a nearly 300-slide proposal that included plans to sell Darden's real estate, franchise its restaurants, spin off The Capital Grille, Yard House and other chains and fix its flagship Olive Garden chain.
It also aims to fix Olive Garden's pasta, which it called poorly handled and generally overcooked.
"Shockingly, Olive Garden no longer salts the water it uses to boil the pasta, merely to get a longer warranty on its pots" said Starboard, which also plans to boost Olive Garden's alcohol sales and dole out fewer of its popular breadsticks.
James Mitarotonda, CEO of fellow Darden activist Barington Capital Group, in June 2013 approached the company with ideas to improve results and kicked off what became a 16-month battle for the company's future.
"We are extremely pleased that necessary changes have been made," Mitaronda said in a statement.
(Additional reporting by Ross Kerber in Boston; Editing by Lisa Shumaker, Meredith Mazzilli and Chris Reese)
By Christopher Boyd and Lisa Baertlein