Darden extends tender offers for four series; proxy fight poses thorns

By Susanna Moon

Chicago, July 25 – Darden Restaurants, Inc. said it extended the cash tender offers for up to $610 million of four note series.

The offers will now end at midnight ET on Aug. 7, extended from midnight ET on July 28, with settlement slated for Aug. 8.

Also, the early tender deadline was extended to coincide with the offer expiration at midnight ET on Aug. 7 from 5 p.m. ET on July 14.

The company reinstated withdrawal rights until the end of the offer.

As of 4 p.m. ET on July 24, the early tender date, holders had tendered the following:

• $272,688,000, or 68.17%, of the $400 million of outstanding 4.5% senior notes due 2021;

• $379,613,000, or 84.36%, of the $450 million of outstanding 3.35% senior notes due 2022;

• $115,382,000, or 76.92%, of the $150 million of outstanding 6% senior notes due 2035; and

• $218,311,000, or 43.66%, of the $500 million of outstanding 6.2% senior notes due 2017.

That compares with $272,541,000, or 68.14%, of 4.5% notes, $378,983,000, or 84.22%, of the 3.35% notes, $115,327,000, or 76.88%, of the 6% notes and $218,311,000, or 43.66%, of the 6.2% notes as of 5 p.m. ET on July 14, the previous early tender date.

The notes are listed in order of priority acceptance level. The company previously said that, since the combined amount of 4.5% and 3.35% notes tendered exceeds the maximum amount of the offers, the company does not expect to accept any of the 6% or 6.2% notes.

Darden said on July 15 that it increased the tender offer cap to $610 million and eliminated the tender caps for two of the series.

Originally, the company tendered for up to $600 million principal amount of four series of notes, with a sub-cap of $300 million for the first two series of notes listed below.

Potential triggers

Darden Restaurants also said that there could be potential issues under three of the bond series related to the nomination of 12 candidates to the company’s board of directors by Starboard Value LP and its affiliates, according to an 8-K filing with the Securities and Exchange Commission.

In connection with a proxy contest, it is possible that Starboard-nominated directors could constitute a majority of the board following the shareholder meeting on Sept. 30, the company said.

The terms of the company’s $750 million revolving credit agreement, dated Oct. 3, 2011, and the term loan agreement, dated Aug. 22, 2012, each with Bank of America, NA as administrative agent, include change-of-control triggers regarding a turnover of a majority of the company’s board, resulting in a potential event of default, the filing said.

That could lead to a change-of-control trigger for the company’s 6.2% senior notes due 2017, 4.5% senior notes due 2021, 3.35% senior notes due 2022 and 6.8% senior notes due 2037.

The note terms require the company to make a change-of-control offer at 101% of par plus accrued interest when there is both a change of control and a below investment-grade rating event, the release noted.

Also, the company’s 3.79% senior notes due 2019 and 4.52% senior notes due 2024 also require that the company offer to purchase the notes upon a change of control at par plus accrued interest.

On Thursday, the company’s board approved and nominated the Starboard nominees just for purposes of the debt documents in order to avoid a potential event of default, acceleration of its debt and an obligation to make the change-of-control offers.

The action does not constitute an approval or endorsement of any of the 12 Starboard nominees as directors for any other purpose. In particular, the board is not recommending that shareholders of the company vote for any of the 12 Starboard nominees at its upcoming annual meeting.

The company said it believes that no further action is required under the change-of-control public notes to eliminate the change-of-control trigger if a majority of the Starboard nominees are elected and is in talks with its lenders under the revolver and term loan regarding these matters.

Tender pricing, other details

As announced before, pricing for each $1,000 principal amount was set at 2 p.m. ET on July 14 using a reference security and a fixed spread as follows:

• $1,056.73 for the 4.5% notes, calculated using the 2.5% Treasury notes due May 15, 2024 plus 105 bps;

• $1,000.04 for the 3.35% notes, based on the 2.5% Treasury notes due May 15, 2024 plus 80 bps;

• $1,107.18 for the 6% notes, based on the 3.625% Treasury notes due Feb. 15, 2044 plus 180 bps; and

• $1,152.84 for the 6.2% notes, based on the 0.625% Treasury notes due Sept. 30, 2017 plus 25 bps.

The total amounts include a $30.00 early tender payment per $1,000 of notes tendered by the early tender date.

Those who tender after the early tender deadline will receive the total amount less the early premium.

The company also will pay accrued interest up to but excluding the settlement date.

The tender offers are conditioned on the company’s planned sale of its Red Lobster business with enough proceeds to fund the offers.

Darden expects to use about $1 billion of the cash proceeds from the planned sale of its Red Lobster business to retire outstanding debt, according to a prior press release.

In addition to the tender offers, Darden has agreed to repurchase $80 million and $210 million principal amount of its 3.79% senior notes due 2019 and its 4.52% senior notes due 2024, respectively. Darden’s agreement to repurchase the notes is conditioned upon the planned Red Lobster sale.

BofA Merrill Lynch (888 292-0070 or 980 387-3907 collect), US Bancorp (877 558-2607 or 612 336-7604 collect) and Wells Fargo Securities (866 309-6316 or 704 410-4760 collect) are the lead dealer managers, and Deutsche Bank Securities and Mizuho Securities are the co-dealer managers.

Requests may be directed to D.F. King & Co., Inc. (212 269-5550 for banks and brokers or 800 967-4617 for all others).

Darden is an Orlando, Fla.-based casual dining operator. It launched the offers on June 30.

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