Under the agreement, Darden will purchase the locally based company for $38.15 per share--a figure that represents a 39% premium to Rare's average closing stock price for the past 30 days. The $1.4-billion total price tag includes outstanding debt and capital lease obligations that Darden will assume when the deal closes.

Darden will use a $1.2-billion senior interim credit facility and a $700-million senior revolving credit facility to finance the all-cash deal. Bank of America is the lead arranger on the senior interim credit facility and the senior revolving credit facility. Lehman Brothers also advised Darden on the transaction.

In Rare Hospitality's stable of owned, operated and franchised restaurants are 287 LongHorn Steakhouse and 28 Capital Grille restaurants. Darden's portfolio counts 1,400 Red Lobster, Oliver Garden, Bahama Breeze, Smokey Bones and Season 52 restaurants with annual sales of $5.6 billion.

As a result of the acquisition, Rare's David George will remain president of LongHorn Steakhouse, with LongHorn Steakhouse reporting to Darden president and chief operating officer Drew Madsen. John Martin will continue to lead Capital Grille as president. Gene Lee, Rare's president and chief operating officer, will become president of Darden's new Specialty Restaurant Group--which will include Capital Grille, Bahama Breeze and Seasons 52.

Rare's chairman and CEO Philip Hickey will serve 12 months as an executive advisor to Darden's chairman and CEO Clarence Otis and the executive team. Rare's chief financial officer Douglas Benn will continue with the combined company as a senior leader of the team with day-to-day responsibility for integration.

In a joint conference call this morning, Otis said that, with all Darden has accomplished with its brands, it has fallen short on total sales growth, and the company was looking for the right partner. "Total sales growth at Darden has lagged casual dining chains mainly because of the shortfalls in new restaurant growth because we have had less than desired success with inherently higher risk venture stage new concepts," he explained. "We focused on finding the right partner with proven growth concepts and Rare is the right partner."

To that end, Hickey added that Rare plans to open 38 to 40 new restaurants this year alone.

"This partnership creates a powerful combination of concepts that really lead big casual-dining concepts--steak, Italian and seafood," Otis said. "And with Capital Grille and Seasons 52 it also positions us very well in that place where casual dining and fine dining start to converge."

With this partnership, Otis added, Darden can further strengthen the consumer proposition of LongHorn Steakhouse and the Capital Grille. In addition, Rare can help fully realize the potential of Darden's concepts, he said. "Ultimately, it means we are better poised to sustain strong sales growth and achieve our long-term objectives."

Instant Insights /

Darden To Take Rare Hospitality in $1.4B Deal

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