Immediately after closing the sale of Red Lobster to Golden Gate Capital, Darden (DRI) began begging for forgiveness from its spurned activist shareholders. CEO Clarence Otis got sacrificed at the altar resigned and the company announced that it would let Starboard nominate three members to its board who would run unopposed. Starboard was not satisfied with this offer though and continued moving forward with its plans to replace the entire board of directors.

It seems investors were lining up with the activists so Darden upped its offer last week. The restaurant company issued a letter to shareholders noting that in addition to its operational improvements, its latest offer would give Starboard four board seats and replace four other members of its 12 person board with new, more qualified directors. In other words, 8 of the 12 members of the board would be brand new, although 8 would be nominated by the company. The letter includes a bunch of fearmongering that replacing the ENTIRE board could destabilize the company and undo some of the recent positive changes. I guess 75% is tolerable, but 100% is just tooooooo crazy. The real point being made by the company is that giving 100% of the board seats (and effectively full control) to Starboard, a large but still <10% investor, is a serious move without receiving a premium. The letter also notes that the company has tried to work with Starboard, but the fund has been unwilling to make a deal in order to avoid a proxy contest.

Equity analysts from Keybanc and Barclays quoted in the WSJ seem to think this latest offer is reasonable and fair…but the people that matter, Starboard, did not agree.The fund rejected the latest proposal as ‘another poorly conceived and suboptimal solution’ and appears set on seeking an entirely new board. The fund also plans on releasing its own transformation plan and believes its board will be better able to execute on this plan.

As predicted, this situation is getting more and more interesting. Honestly, I am a bit surprised that a deal hasn’t been reached given how desperate management appears to be. Starboard appears to be pushing its luck and it will be interesting to see if shareholders are willing to give the fund the keys to the company without really paying for them. I guess the downside for the fund is limited to four seats so why not go for 12?

Disclosure: Author holds no position in any stock mentioned.