(Adds details, CEO comments)
By Nichola Groom
LOS ANGELES Aug 16 Darden Restaurants Inc.
(DRI.N), owner of the Olive Garden and Red Lobster restaurant
chains, said on Thursday it will acquire LongHorn Steakhouse
parent RARE Hospitality International Inc. (RARE.O) for about
$1.2 billion plus debt.
The two restaurant companies said in a joint statement that
Darden will buy all of RARE's outstanding common stock for
$38.15 per share in cash, a 39 percent premium to its closing
share price of $27.51 on Thursday.
The transaction will bring RARE's casual dining LongHorn
Steakhouse and higher end Capital Grille chains into Darden's
portfolio, which includes smaller chains Bahama Breeze and
Seasons 52, but no steakhouse business.
The news follows the closure and sale of Darden's poorly
performing Smokey Bones barbecue restaurants earlier this year,
and comes seven months after the Orlando, Florida-based
restaurant operator first said it was considering the purchase
of a rival chain.
Based on RARE's 31,083 shares outstanding as of July 1,
Darden will pay about $1.19 billion in cash. The rest of the
$1.4 billion purchase price includes RARE's $125 million of
convertible notes and capital lease obligations.
Atlanta-based RARE owns, operates or franchises 317
restaurants, including 287 LongHorn outlets, while Darden has
nearly 1,400 eateries.
Malcolm Knapp, president of a restaurant research firm,
said RARE's primary chain, LongHorn, will provide Darden with
plenty of opportunity for growth.
"It's a really good deal for both sides," Knapp said.
"Darden needed something of scale that didn't need to be fixed
... LongHorn is pretty concentrated, mostly in the East, so
they have a lot of the U.S. left to exploit."
In an interview following the announcement, Darden Chief
Executive Clarence Otis said he was comfortable with paying
such a high premium for RARE because of the company's long-term
prospects for growth.
"Their stock price is depressed. It's depressed because the
market's depressed overall, it's depressed because of concerns
about consumer discretionary spending and because of where we
are in the beef cycle. All of those things are temporary."
Otis also said he was optimistic about the casual dining
industry even though higher gasoline prices and interest rates
are squeezing consumers' ability to eat out.
"People have jobs and are feeling pretty good about their
jobs," Otis said. "As we look at the big picture, what we are
seeing is basically a financial crisis that is not all that
connected to Main Street."
The deal has already been approved by the board of
directors of both companies, they said.
Darden expects to begin the tender offer for RARE's shares
on Aug. 31, and should close in October. Otis said there would
be job cuts, but he did not yet know how many.
The deal is expected to be neutral to Darden's earnings per
share in fiscal 2008, excluding one-time transaction and
To finance the deal, Darden will use a $1.2 billion senior
interim credit facility and a $700 million senior revolving
Following the deal's close, RARE President and Chief
Operating Officer Gene Lee will become president of Darden's
new specialty restaurant division, which will include Capital
Grille, Bahama Breeze and Seasons 52.
RARE Chairman and Chief Executive Phil Hickey will serve as
an adviser to Darden for a year.
LongHorn President David George will continue to run that
chain, while RARE Chief Financial Officer W. Douglas Benn will
stay with the new company and will have day-to-day
responsibility for the integration.
RARE shares were up 34 percent at $36.75 in extended trade
following the announcement. Darden shares closed up 16 cents at
$39.96 on the New York Stock Exchange.