ORLANDO Fla. Two restaurant industry giants, Darden Restaurants Inc. and Rare Hospitality International Inc., said late Thursday they had agreed to a merger in which Darden will purchase the steakhouse operator for about $1.4 billion, including debt, making it one of the largest strategic purchases in the industry.
Darden plans to buy out Atlanta-based Rare for $38.15 per share in cash, a 39-percent premium over Rare’s average closing stock price for the past 30 days, the companies said in a joint announcement.
The transaction received unanimous approval by the boards of directors at both companies. Darden, which is based in Orlando, will finance the acquisition through cash and newly committed credit facilities of $1.2 billion and a $700 million senior revolving credit. The company expects to commence the tender offer for all outstanding shares of Rare common stock on Aug. 31. The deal is expected to close in October.
Rare currently owns, operates or franchises 317 restaurants, including 287 LongHorn Steakhouse restaurants and 28 Capital Grille restaurants. It recently shed its Bugaboo Creek Steakhouse brand. It posts total sales of around $1 billion. Darden operates 1,397 casual-dining restaurants, including 680 Red Lobster units, 614 Olive Garden outlets, 23 Bahama Breeze restaurants and seven Seasons 52 units. The company, which boasts systemwide sales of more than $5.6 billion, also owns the 73-unit Smokey Bones barbecue chain, which it put up for sale earlier this year after closing more than 50 units.
"The combined organization is strongly positioned to capture the long-term growth opportunity in full-service restaurants," said Clarence Otis, chairman and chief executive of Darden. “Rare Hospitality's two outstanding brands and the talented leadership and restaurant teams behind them enhance Darden's entire organization, but particularly our unit-growth prospects. … And, we see significant synergies from increased efficiency and effectiveness in purchasing, distribution and other restaurant and corporate support. With all these benefits, we believe the combination of Darden and Rare leaves us better positioned to continue to deliver into the future the top quartile value for shareholders that's been a hallmark of each company.”
Philip J. Hickey Jr., chairman and chief executive of Rare, said he believes the deal represents a compelling realization of value for Rare's shareholders. He also said that Darden has the right culture and the resources to help LongHorn and Capital Grille prosper in an intensely competitive industry.
Hickey will stay on for 12 months as an exclusive adviser to Otis and the Darden executive team, while other senior executives from Rare will remain with the combined company.
Gene Lee, Rare's president and chief operating officer, will become president of Darden's new Specialty Restaurant Group, which will include The Capital Grille, Bahama Breeze and Seasons 52. David George will remain president of LongHorn Steakhouse, and John Martin will remain president of The Capital Grille. W. Douglas Benn, Rare's chief financial officer, will continue with the combined company as a senior leader of the team with day-to-day responsibility for integration.