Starboard, one of Darden's largest investors with an 8.8 percent stake, late on Thursday unveiled a proposal that included plans to sell Darden's real estate, franchise its restaurants, spin off The Capital Grille, Yard House and other chains and fix its flagship Olive Garden chain.

Starboard, which also seeks to replace Darden's entire 12-member board, said it has identified cost savings of up to $326 million. It believes its strategy could send Darden's stock as high as $86 per share, even before it gets to work on fixing Olive Garden or selling restaurants to franchisees.

Darden President and Chief Operating Officer Gene Lee said the company was open to ideas for improving long-term results and that it was "encouraged" by its own progress turning around Olive Garden.

Shares, which are down about 13 percent so far this year, fell 1.5 percent to $47.54 in afternoon trading.

Darden reported a net loss of $19.3 million, or 14 cents per share, from continuing operations for its first quarter ended Aug. 24. Quarterly sales at Olive Garden restaurants open at least 16 months fell 1.3 percent.

Olive Garden accounts for more than half of Darden's overall revenue and about two-thirds of its profit. Key same-restaurant sales have been down for five straight quarters as it struggles to lure diners amid robust competition.

Starboard launched a fight to take over Darden's board in May, saying the then-pending sale of Darden's Red Lobster seafood restaurant chain was a "destructive transaction" that ignored the rights of shareholders.

On July 28, the restaurant operator closed its $2.1 billion sale of Red Lobster. It also announced the year-end departure of Chief Executive Officer Clarence Otis.

That latter move was one of several concessions Darden has made to activists, which also include Barington Capital Group.

In its latest move, Darden said it would give four board seats to Starboard nominees.

In its presentation, Starboard outlined ways to cut executive costs and simplify everything from purchasing to menus. It plans to boost Olive Garden's alcohol sales, to use technology to eliminate "false waits" for tables at the Italian-themed chain and to use more cost-effective digital marketing.

The hedge fund also wants to fix Olive Garden's pasta, which it called poorly handled and generally overcooked.

"Shockingly, Olive Garden no longer salts the water it uses to boil the pasta, merely to get a longer warranty on its pots" Starboard said.

Meanwhile, Olive Garden this week had mixed results with its $100 "Never Ending Pasta Pass" that gives holders unlimited pasta, salad, bread and Coca-Cola drinks for seven weeks. It quickly sold all 1,000 passes offered, but demand crashed servers and spawned complaints on Facebook and Twitter from empty-handed diners.

(Additional reporting by Arnab Sen in Bangalore; Editing by Gopakumar Warrier, Kirti Pandey and Paul Simao; Editing by Chizu Nomiyama)

By Lisa Baertlein and Ramkumar Iyer