Call it a tale of two lobsters.
Darden Restaurants has told shareholders that Red Lobster, the seafood chain it recently sold, smells like week-old fish. But to another group of investors, the restaurant chain was described as a tasty treat.
Shortly after Darden announced a deal to sell Red Lobster to private equity firm Golden Gate Capital for $2.1 billion in May, the restaurant chain began to market a $425 million debt offering. CNBC Digital has obtained a copy of a 74-page document related to the deal, which isn't available on any public website and wasn't distributed to Darden shareholders. The document originated with a debt investor source.
The "Confidential Information Memorandum" said that Red Lobster's profits peaked in 2011 and have since declined due to several factors, but the company believes the business will improve. "The management team believes that each of these issues are temporary in nature, correctable, and that they have plans in place to return the business to historic levels of profitability," the memorandum said. The document is dated "June 2014," when Red Lobster was still a unit of Darden. The Red Lobster sale didn't close until July 28, when the debt deal was also completed.
The upbeat view on Red Lobster may come as a surprise to Darden shareholders. When the Red Lobster sale was announced in May, Darden said it would "bolster the Company's financial foundation" and allow it to focus on the Olive Garden restaurant chain.
After the deal closed several weeks later, Darden went a step further, suggesting it had rid itself of a business that wouldn't improve anytime soon. "Red Lobster's business continued to decline through fiscal year end, and based on industry trends, the declines were expected to continue for an extended time," the company said in a press release on August 4. The company cited several "key reasons for long term structural decline in Red Lobster's operations" including financial pressure on its customers, competition, and rising costs.
Why would Darden's management paint a bleaker picture of Red Lobster's prospects than fellow executives who manage the restaurant?
Activist shareholders Barington Capital and Starboard Value have said Darden rushed into a Red Lobster sale to prevent them from achieving their own goals. To convince shareholders Red Lobster should be sold, Darden may have underplayed its potential, Starboard has said. "If management were truly interested in realizing the maximum value for Red Lobster's business and assets, we would expect management to be publicly emphasizing the value inherent in the business and the promising turnaround opportunity, rather than focusing on the challenge it faces," Starboard said in a letter to management in March.
Read MoreDarden CEO and chairman Clarence Otis steps down
Both activists suggested Darden could spin off the entire company's real estate. Without the Red Lobster property, there is far less opportunity to unlock value through a real estate deal, the activists have said. Starboard and Barington declined to comment to CNBC Digital.
In a statement, a Darden spokesman said: "The non-public document you reference and all estimates therein were prepared by Golden Gate Capital and Red Lobster as part of the debt financing efforts in connection with Golden Gate Capital's acquisition of Red Lobster. To the extent that they reference Red Lobster executives, those executives were working on behalf of Golden Gate Capital.
"Indeed, the acquisition agreement with Golden Gate Capital specifically provides that Red Lobster's management team, working with Golden Gate, would support the efforts to raise debt financing," a spokesman continued. "Any representation of this document as a Darden document or as Darden projections is factually inaccurate and misleading." Golden Gate Capital declined to comment.
Some corporate governance experts say Darden shareholders should have seen the information in the memorandum. "Telling the shareholders one thing because they want them to sign off on a sale and telling debt investors another thing is problematic," said Jill Fisch, a law professor specializing in corporate governance at the University of Pennsylvania. "If I were a shareholder I'd want to have this information."
Moreover, Fisch said there's no real distinction between Red Lobster management and Darden management as long they were part of the same company.
The memorandum goes into a detailed analysis of factors that can help Red Lobster's business improve, such as a decline in various input costs, along with a reduction of complimentary meals. "The Red Lobster management team believes that the identified cost savings are a conservative estimate of true potential with additional upside above identified opportunities," the memorandum says.
Those benefits lead to a much rosier profit outlook than Darden investors had been told to expect. Specifically, the memorandum estimates the company's earnings before interest, taxes, depreciation, and amortization (ebitda) can be $150 million after it addresses some low-hanging fruit. That compares with an "unadjusted" ebitda level of $125 million for fiscal 2014, which ended in May.
The memorandum said Red Lobster can be even more profitable, reaching a target ebitda of $200 million as the company realizes further cost savings.
Darden shareholders, meanwhile, were told that Red Lobster's profit was in decline with no sign of improvement. In Darden's Aug. 4 presentation, it said Red Lobster "was expected to have less than $100 million of ebitda as of the transaction close." Darden went on to say that "given deteriorating trends at Red Lobster and multiple turnaround attempts, the divestiture is projected to be medium and long-term accretive."
The difference in outlooks is critical because a higher level of ebitda would likely mean a greater contribution to Darden's profits if Red Lobster had remained part of the company. Similarly, investors might have hoped for Darden to sell Red Lobster for a higher price if its prospects had become rosy.
Read MoreDarden sells Red Lobster to Golden Gate
The memorandum also raises questions about Darden's disclosure. Listed companies commonly communicate with select groups of investors, but normally need to make disclosures "promptly" if any nonpublic information is disclosed, according to a Securities and Exchange Commission rule known as Regulation FD. The rule applies if selectively-disclosed information is material to a company's financial condition. A spokesman for the SEC declined to comment to CNBC Digital about Darden.
The memorandum contains a letter dated June 25 from Red Lobster to Deutsche Bank, the deal underwriter, stating that the information it provided is "either (i) publicly available or (ii) not material (although it may be sensitive and proprietary)." Deutsche Bank declined to comment.
Darden wasn't required to seek shareholder approval for the Red Lobster sale. Starboard, which owns 8.8 percent of Darden shares, attempted to put the matter to shareholder vote and told the company it had secured enough shareholder support to call a meeting. But Darden announced its deal to sell Red Lobster before any such meeting took place.
The activists have criticized the Red Lobster sale since the deal. In May, Barington said the deal "severely undervalues Red Lobster" and "does not retain future upside for shareholders." Starboard said on July 15 that the company "decided unilaterally to sell Red Lobster at a fire sale price."
Some Wall Street analysts have also criticized Darden for its move. "Management's decision to ignore shareholder concerns and go forth with an undervalued sale of Red Lobster as opposed to waiting for operations to improve or entertain monetization without fully disposing the brand during a depressed earnings period will likely result in meaningful changes at the board level and among senior management," Buckingham Research analyst Matthew DiFrisco wrote in a May investor note.
Darden announced that CEO Clarence Otis would step down from the company on July 28, the day the Red Lobster deal closed. Even so, Darden shares have remained weak, falling 13 percent since the start of 2014 while the S&P 500 has gained 7 percent.
The activists, meanwhile, have pushed for further change. Starboard has nominated 12 directors, enough to replace Darden's entire board, for a vote at the annual shareholder meeting on Sept. 30. Barington has said it supports all of Starboard's nominees.
—By CNBC.com's John Jannarone