(Reuters) - Darden Restaurants Inc <DRI.N>, under scrutiny from two activist investors over a plan to sell or spin off its Red Lobster chain, on Friday resisted pressure put the divestiture of the struggling seafood restaurants to a shareholder vote.
Shares in Orlando-based Darden were up 2.9 percent to $50.73 in early trading after it also reported fiscal third-quarter results in line with its previously lowered expectations.
Still, the results showed a severe deterioration at Red Lobster, which accounts for an estimated 30 percent of revenue at Darden, whose other chains include Olive Garden and the Capital Grille.
Darden announced plans on December 19 to spin off or sell its 705-restaurant Red Lobster chain. The company said the transaction would not require a shareholder vote and could close in the fiscal year beginning May 26.
Activist investors Starboard Value LP and Barington Capital Group are pressing Darden to move more boldly to improve performance at the company, the biggest U.S. operator of full-service restaurants.
Starboard, which owns about 5.5 percent of Darden shares, is soliciting support for its bid to hold a special shareholder meeting to vote on Darden's Red Lobster plan.
Darden, which canceled its analyst and investor meeting slated for later this month, said it prefers to have one-on-one discussions with investors.
"We believe that shareholders should continue to engage directly with the company and should not view a special meeting as a substitute for that ongoing two-way engagement," Darden Chief Executive Officer Clarence Otis said on a conference call on Friday.
The activists' calls for more robust interventions gained urgency after Darden warned earlier this month that closely watched same-restaurant sales at Red Lobster and Olive Garden, its marquee chains, had fallen sharply in the latest quarter due in part to severe winter weather.
Darden said on Friday that sales at established restaurants tumbled 8.8 percent at Red Lobster and 5.4 percent at Olive Garden in the third quarter ended February 23.
Red Lobster suffered double-digit percentage declines in customer visits in each month of the latest quarter, chalking up nine straight months of falling traffic.
Darden's quarterly net income was down 18 percent to $109.7 million, or 82 cents per share.
Barington, which represents a group of shareholders that holds more than 2 percent of Darden shares, wants the company to split its businesses. One company would operate the mature Olive Garden and Red Lobster chains. The other would own brands like LongHorn Steakhouse, Seasons 52, Capital Grille and three others.
It also is pushing Darden to explore creating a publicly traded real estate investment trust (REIT) to "unlock the value" of its property holdings, which it has valued at about $4 billion before leakage costs.
Barington also wants Darden's board to split the chairman and CEO roles. Otis has been CEO since November 2004 and chairman since November 2005.
Otis orchestrated Darden's acquisitions of LongHorn Steakhouse, Capital Grille, Eddie V's and Yard House. Barington and other critics say those moves led to a lack of focus, bloated operating costs and roughly 18 months of market share losses at its three biggest brands.
(Reporting by Lisa Baertlein and Aditi Shrivastava; Editing by Savio D'Souza and Chizu Nomiyama)