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Red Lobster says it will soon exit bankruptcy protection
NEW YORK | After months of dozens of restaurant closings and headlines about “endless shrimp” woes, Red Lobster says it will soon exit from Chapter 11 bankruptcy protection.
A U.S. bankruptcy judge on Thursday approved the casual seafood chain’s reorganization plan, which includes a lender group led by asset manager Fortress acquiring the business. The green light arrives under just four months after Red Lobster filed for bankruptcy protection as it pursued a sale, following years of mounting losses and dwindling customers while it struggled to keep up with competitors.
At the time of filing in May, Red Lobster’s leadership shared plans to “simplify the business” through a reduction of locations. The chain, which lost $76 million in 2023, shuttered dozens of its North American restaurants over recent months — both leading up to and during the bankruptcy process. That includes more than 50 locations whose equipment was put up for auction just days before the Chapter 11 petition, followed by additional closures throughout the bankruptcy process.
Red Lobster said Thursday that it expects to operate about 544 locations across the U.S. and Canada upon emerging from bankruptcy. That’s down from 578 disclosed as of May’s bankruptcy filing.
Under terms of the acquisition, which is expected to close by the end of September, the chain will continue to operate as an independent company.
Once the deal is finalized, Red Lobster will also get a new CEO — Damola Adamolekun, former chief executive of P.F. Chang’s.
Adamolekun was appointed to head RL Investor Holdings, the newly formed entity acquiring Red Lobster, by Fortress last week. In a statement Thursday, Adamolekun said that Red Lobster “has a tremendous future” and thanked Jonathan Tibus, who will leave the company and step down as CEO, for his leadership during the bankruptcy process.
Red Lobster’s purchaser is also providing additional funding to help the Orlando, Florida-based chain get back on its feet post-emergence. Adamolekun said the company’s long-term investment plan includes a commitment of more than $60 million in new funding.
Known for its affordable seafood and cheddary biscuits, Red Lobster has seen multiple ownership changes over the course of its 56-year history. The brand was founded back in 1968 by Bill Darden, who sold Red Lobster to General Mills in 1970. General Mills later went on to form Darden Restaurants, which owns Olive Garden and other chains. Darden Restaurants was spun off from General Mills in 1995.
Darden Restaurants later sold Red Lobster to a private equity firm in 2014. Thai Union Group, one of the world’s largest seafood suppliers, first invested in Red Lobster in 2016 and upped its stake in 2020 — but announced its intention to exit its minority investment earlier this year.
When announcing plans to divest in January, CEO Thiraphong Chansiri said the COVID-19 pandemic, industry headwinds and rising operating costs from Red Lobster had resulted in “prolonged negative financial contributions to Thai Union and its shareholders.” It reported a $19 million loss from Red Lobster for the first nine months of 2023.
While not the sole reason, among sources of loss were — yes — those endless shrimp. Last year, Red Lobster significantly expanded the iconic all-you-can-eat special. But customer demand overwhelmed what the chain could afford. Thai Union leadership later noted that the deal’s $20 price tag wasn’t making enough money.
Last year’s shrimp debacle wasn’t the first time Red Lobster saw consequences of “endless” promises. In 2003, the company reportedly lost millions of dollars on an all-you-can-eat “Endless Crab” promotion when crab prices rose.
U.S. government orders U.S. airlines to explain their frequent-flyer programs
The Biden administration is examining the four largest U.S. airline frequent-flyer programs and how they devalue points that consumers have earned and frequently change the number of points or miles needed to book flights.
Transportation Secretary Pete Buttigieg wrote to the CEOs of American, Delta, Southwest and United on Thursday, asking each for a report on policies, fees and other features of their loyalty program.
Consumers often complain that airlines raise the number of points needed to earn a free flight and limit the number of seats that can be purchased with points.
Buttigieg said loyalty programs bring value to consumers, and people count on them to pay for vacations and trips to visit family.
“But unlike a traditional savings account, these rewards are controlled by a company that can unilaterally change their value,” he said in a statement issued by the Transportation Department. “Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair.”
Delta said loyalty of members in its frequent-flyer program “means everything to us, and providing a meaningful rewards experience is the top priority within Delta’s SkyMiles Program.” Southwest highlighted that its points never expire, and said it books more seats with points than other airlines.
Airlines for America, a trade group that represents all four carriers targeted by Buttigieg, said millions of people enjoy participating in the loyalty programs.
“U.S. carriers are transparent about these programs, and policymakers should ensure that consumers can continue to be offered these important benefits,” a spokesperson for the group said.
Frequent-flyer programs were once based on the number of flights taken or miles flown. In recent years, however, they have been fueled by spending that consumers conduct using airline-branded credit cards. Income from the credit-card issuers has become an important source of airline revenue.
The Transportation Department and the Consumer Financial Protection Bureau held a hearing in May on the airline programs, at which they raised many of the issued covered in Buttigieg’s letter to airline CEOs. Witnesses included consumer advocates and officials from three smaller airlines, but no representatives of the big four airlines that are covered by the new inquiry.
One of the advocates who testified, Erin Witte of the Consumer Federation of America, said frequent-flyer programs started as a reward for consumers who were loyal to one airline.
“It’s ironic that many of them have morphed into programs that are anything but loyal to their customers and instead make people feel like they need an insurance policy to keep the points they have earned,” Witte said Thursday. She said she was glad the Transportation Department is examining the programs.
The consumer-protection board said in a report for the hearing that it received more than 1,200 complaints about credit card rewards last year, an increase of more than 70% from pre-pandemic levels. Many hotels, retailers and other businesses also offer loyalty programs with credit cards.
Buttigieg ordered the airlines to report within 90 days on matters including how point values are determined, any fees that consumers must pay, and details of deals with banks that buy miles from airlines and use them to encourage people to shop with their credit cards.
The order asks airlines to list any changes in their programs since July 31, 2018, including how each change affected the dollar value of reward points.
Applications for U.S. jobless benefits fall to 2-month low
The number of Americans filing for unemployment benefits fell to its lowest level in two months last week, signaling that layoffs remain relatively low despite other signs of labor market cooling.
Jobless claims fell by 5,000 to 227,000 for the week of Aug. 31, the Labor Department reported Thursday. That’s the fewest since the week of July 6, when 223,000 Americans filed claims. It’s also less than the 230,000 new filings that analysts were expecting.
The four-week average of claims, which evens out some of the week-to-week volatility, fell by 1,750 to 230,000. That’s the lowest four-week average since early June.
Weekly filings for unemployment benefits, considered a proxy for layoffs, remain low by historic standards, though they are up from earlier this year.
During the first four months of 2024, claims averaged a historically low 213,000 a week. But they started rising in May. They hit 250,000 in late July, adding to evidence that high interest rates were finally cooling a red-hot U.S. job market.
Employers added just 114,000 jobs in July, well below the January-June monthly average of nearly 218,000. The unemployment rate rose for the fourth straight month in July, though it remains relatively low at 4.3%.
Economists polled by FactSet expect Friday’s August jobs report to show that the U.S. added 160,000 jobs, up from 114,000 in July, and that the unemployment rate dipped to 4.2% from 4.3%. The report’s strength, or weakness, will likely influence the Federal Reserve’s plans for how much to cut its benchmark interest rate.
Last month, the Labor Department reported that the U.S. economy added 818,000 fewer jobs from April 2023 through March this year than were originally reported. The revised total supports evidence that the job market has been steadily slowing and reinforces the Fed’s plan to start cutting interest rates later this month.
The Fed, in an attempt to stifle inflation that hit a four-decade high just over two years ago, raised its benchmark interest rate 11 times in 2022 and 2023. That pushed it to a 23-year high, where it has stayed for more than a year.
Inflation has retreated steadily, approaching the Fed’s 2% target and leading Chair Jerome Powell to declare recently that it was largely under control.
Traders are forecasting the Fed will cut its benchmark rate by a full percentage point by the end of 2024, which would require it to cut the rate by more than the traditional quarter of a percentage point at one of its meetings in the next few months.
Thursday’s report also showed that the total number of Americans collecting jobless benefits declined by 22,000 to 1.84 million for the week of Aug. 24.
Verizon is buying Frontier in $20B deal to strengthen its fiber network
Verizon is buying Frontier Communications in a $20 billion deal to strengthen its fiber network.
Verizon Communications Inc. said Thursday that the acquisition will also shore up its foray into artificial intelligence as well as connected smart devices.
Frontier has concentrated heavily on its fiber network capabilities over about four years, investing $4.1 billion upgrading and expanding its fiber network. It now gets more than half of its revenue from fiber products.
The price tag for Frontier, based in Dallas, is sizeable given its 2.2 million fiber subscribers across 25 states. Verizon has approximately 7.4 million Fios connections in nine states and Washington, D.C.
Frontier has 7.2 million fiber locations and has plans to build out an additional 2.8 million fiber locations by the end of 2026.
“The acquisition of Frontier is a strategic fit,” Verizon Chairman and CEO Hans Vestberg said in a prepared statement. “It will build on Verizon’s two decades of leadership at the forefront of fiber and is an opportunity to become more competitive in more markets throughout the United States, enhancing our ability to deliver premium offerings to millions more customers across a combined fiber network.”
There are skeptics of the potential for Verizon’s $20 billion acquisition, however.
“The real issue is simply that Frontier’s paltry 3.5% national fiber coverage (again, according to the FCC’s broadband map as of end of 2023) would leave Verizon with a combined fiber footprint that still covers less than 13% of the country, with a path to potentially take that only to about 17% of the country,” Craig Moffett of MoffettNathanson Research wrote. “A fiber footprint covering 17% of the U.S. is nowhere near large enough to be the basis of a strategy for a national wireless operator.”
Verizon, based in New York City, will pay $38.50 for each Frontier share. The deal is expected to close in about 18 months. It still needs approval from Frontier shareholders.
Shares of Frontier Communications Parents Inc., which were halted briefly on Wednesday after a report from the Wall Street Journal about the deal sent the stock up nearly 40%, fell 9% Thursday. Verizon’s stock dipped slightly.
—From AP reports
