One viewpoint is that the sale "could destroy as much as $800 Million of shareholder value." Another viewpoint is that Red Lobster and Olive Garden should have been joined into a separate company, while Longhorn and Capital Grille get combined into another company, both still under Darden.
This just screams "DECISION MODEL NEEDED" at me - how about you?
"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."Other information in the article leads us to infer that the restaurant chain is "struggling" in part due to competition from "fast-casual" restaurants, two of which are mentioned.
So, now I've set the stage for you. Do you see yet why a decision model would have been such a great tool to use in this process?
A few thoughts, then I'll take a shot at a high level of what a decision model would look like.
- A decision model makes decisions transparent. Darden management could have easily pulled the two activist investors into the boardroom, shown them the decision model, run the simulations through time, and gotten the investors on board with the decision.
- They could have put the investors' ideas into the model and had evidence of whether or not those ideas were workable, viable, and would achieve the outcomes.
- The outcomes would have been agreed up front. It is possible that the desired outcome was "get the best deal for Red Lobster and get rid of the chain," in which case neither of the investor ideas would have helped achieve the outcome. That said, we think it more likely that the outcome would be more along the lines of "increase value to shareholders" or "increase revenue from Red Lobster."
- A decision model could have put more possible decisions into the mix. For example, did Darden consider morphing any of its casual-dining restaurants into fast-casual? Is there a "blue ocean" to be created still in the crowded dining industry?