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Analyst: Darden open to acquisitions

Company 'may be looking now' for potential buyout targets

Darden Restaurants Inc., parent to the Olive Garden, Red Lobster and other casual-dining chains, may be shopping for another brand, an analyst reported Monday.

Steve West and Matthew Van Vliet, restaurant analysts with Stifel Nicolaus Weisel, recently met with Darden executives and said in a research note Monday that the Orlando, Fla.-based company “may be looking now.”

“Management discussed the challenge of growing top line at current target after five years and believe they may have to look to another acquisition longer-term,” the analysts said.

West and Van Vliet said Darden executives outlined criteria for a potential acquisition, including "[complementary] to existing brands, leverageable within their supply chain, proven superior unit economics, higher average checks, and ability to expand nationally, and generating about $500 million to $1 billion in sales.”

Darden executives indicated they preferred the categories of steak, Asian or “even a differentiated bar and grill concept.” Mexican would also be considered, though the analysts said that category exhibited less attractive margins.

While they warned they were not speculating a deal, West and Van Vliet suggested that BJ’s Restaurants Inc., the 100-unit casual-dining chain based in Huntington Beach, Calif., might meet those criteria “as a differentiated [bar and grill] concept with superior unit economics and an ability to expand nationally.”

Darden’s last acquisition was in fall 2007, when it merged with Rare Hospitality International Inc. of Atlanta in a $1.4 billion deal that added LongHorn Steakhouse and The Capital Grille to its portfolio.

In their report Monday, West and Van Vliet said LongHorn Steakhouse would be Darden's "driving force for unit growth going forward" and that the company's smaller brands — Capital Grille, Seasons 52 and Bahama Breeze — “will also complement growth.”

Last week Darden reported net income rose 19.9 for the first quarter ended Aug. 29, to $113.3 million, or 80 cents per share, from $94.3 million, or 67 cents per share, in the same period last year. Revenue was up 4.2 percent to $1.81 billion in the first quarter compared to $1.73 billion in the year-ago period.

Darden had 1,832 restaurants over all its brands at the end of the first quarter.

Contact Ron Ruggless at [email protected].

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