Pressure from a hedge fund led Darden to the sale of Red Lobster.
Pressure from a hedge fund led Darden to the sale of Red Lobster. - 
Listen To The Story
Marketplace

The Darden Restaurant Group released earnings Tuesday. Darden owns concept restaurants including the Olive Garden, Longhorn Steakhouse and Bahama Breeze, among others. The last couple of years have been tumultuous for the group. 

Late last year, the hedge fund Starboard Value convinced shareholders to replace the entire Darden board, just months after Darden sold one of its biggest names, Red Lobster. Darden had been a darling of investors, according to Kevin Burke, managing partner at Trinity Capital. He says the group might have become complacent. 

"It’s just like a college football program," Burke says. "You win, you go to bowl games and you recruit. If you recruit, you win. Guys on top kind of stay on top. And I think Darden had been on top for a long time.”

Besides getting rid of its board, Darden spun off its real estate into something called a REIT — a real estate investment trust. That REIT will lease the properties back to Darden.

"It's really a win-win," Michael Hurwitz, a partner at Marks Paneth LLP, says. "From a tax standpoint you get the benefit of kind of like another line item of deduction: rent expense. And that rent expense becomes rental income over at the REIT.”

Darden could then raise capital from that real estate move, which takes effect in January. But, there might be a catch. Last week the IRS said it has concerns about these spin-offs.

As a nonprofit news organization, Marketplace is on a mission that drives what we do every day: to increase economic intelligence across the country. But we can’t do it alone. Become a Marketplace Investor today, in whatever amount you choose, and your donation will go twice as far, thanks to a dollar-for-dollar match from The Kendeda Fund.

Become a Marketplace Investor today – in whatever amount is right for you – and keep public service journalism strong. We’re grateful for your support.

Follow Andy Uhler at @AU_Marketplace