(Reuters) - Darden Restaurants Inc <DRI.N> said it agreed to sell its Red Lobster seafood chain to private equity firm Golden Gate Capital for $2.1 billion in cash, defying pressure from an activist investor who opposed plans to shed the struggling chain.
Darden's shares were up marginally before the bell.
Hedge fund Starboard Value LP had opposed a sale or spinoff of Red Lobster, saying such a move could destroy as much as $800 million of shareholder value.
Darden said on Friday that it expects net cash proceeds of about $1.6 billion from the sale, of which about $1 billion would be used to retire debt.
The remainder would be used to buy back up to $700 million of shares in fiscal 2015, Darden said.
Darden, the biggest U.S. operator of full-service restaurants, has been battling competition from so-called “fast-casual” restaurants such as Chipotle Mexican Grill <CMG.N> and Panera Bread <PNRA.O>.
Red Lobster, whose same-restaurant sales have fallen in five of the last six quarters, contributed about 31 percent of Darden's total revenue in 2013.
Another activist investor, Barington Capital Group LP had pressed Darden to put its more-mature Red Lobster and Olive Garden chains into one company, and its higher-growth chains, including LongHorn Steakhouse and Capital Grille, into another.
Starboard declined to make an immediate comment, while Barington was unavailable.
Darden, which expects the deal to close in the first quarter of 2015, said it explored several options to separate Red Lobster, but concluded that the Golden Gate deal maximized the value of the business and its real estate assets.
Darden's shares closed at $50.69 on the New York Stock Exchange on Thursday
Goldman, Sachs & Co is Darden's exclusive financial adviser, while Latham & Watkins is its legal counsel.
Morgan Stanley is the financial adviser to Darden's board, while Wachtell, Lipton, Rosen & Katz is its legal adviser.
Deutsche Bank Securities Inc and Jefferies LLC are Golden Gate's financial advisers.
Deutsche Bank Securities Inc, GE Capital and Jefferies Finance LLC are providing debt commitments for the acquisition.
(Reporting by Maria Ajit Thomas in Bangalore; Editing by Savio D'Souza)
Correction: An earlier headline indicated Red Lobster had already been sold. In fact, Darden has agreed to sell the chain of restaurants.