​Can Darden rebound after selling Red Lobster?

Darden Restaurants has agreed to sell its Red Lobster restaurant chain to investment firm Golden Gate Capital for $2.1 billion.

Justin Sullivan, Getty Images

One investor still has its claws out for ailing Darden Restaurants (DRI) despite the company's move to sell Red Lobster.

Darden on Monday announced it completed the $2.1 billion sale of the seafood chain to Golden Gate Capital and that chief executive Clarence Otis will step down by year-end. Darden's proposed sale of Red Lobster had been the focus of protest from activist investor Starboard Value, which launched a proxy campaign to take over the restaurant giant's board.

Starboard Value, which owns 8.1 percent of Darden, on Tuesday called the Red Lobster sale "value-destroying" and said it continue to press for change at Darden. While Darden owns several restaurant chains including Olive Garden, the seafood chain sparked the creation of the dining empire after William Darden opened the first Red Lobster in 1968.

Starboard called Otis' departure "overdue."

"Mr. Otis leaving represents just one small step in the transformation that is urgently needed at Darden," Starboard chief executive Jeffrey Smith said in a statement. "To be clear, the company still requires a major overhaul at the board level."

To some extent, Smith may get his wish. Darden said Monday that it would nominate nine out of 12 board members, ensuring that Starboard will be able to place at least three of its nominees on the ballot. Darden also said it was in settlement discussions with Starboard about its proxy contest, but hadn't been able yet to reach an agreement.

Darden shares rose as much as 5.8 percent on Tuesday. The stock has shed 17 percent of its value this year through Monday.

Otis joined the company in 1995, and became CEO in 2004. Under his leadership, the company grew from 1,381 restaurants to more than 2,200 locations, the company said.

But despite the track record of growth, Darden has struggled in recent years, with diners snubbing its full-service restaurants in favor of less expensive, fast-casual restaurants such as Panera Bread (PNRA). Darden shares are down roughly 12 percent on the year.

Visits to casual dining restaurants fell to a six-year low for the year ending February 2014, according to the NPD Group. That has resulted in 7.1 million fewer customer visits to chains like Olive Garden. The root causes include price sensitivity and increased competition, the market research firm said in a May report.

The bigger issue, aside from the outcome of the proxy battle, is whether diners can be convinced to return to LongHorn Steakhouse and The Capital Grille, which are among the seven brands still owned by Darden. Olive Garden, meanwhile, is overhauling its menu to include lower-price items and remodeling its interiors. But not everyone's a fan of the new look, with the new decor called "inoffensive and charmless" by Businessweek.

Unfortunately for investors, the company may serve up more lumps in the spaghetti sauce given Starboard's stance and the ongoing turnaround.