By Lisa Kerner
Charlotte, N.C., Aug. 16 - Darden Restaurants, Inc. will make a tender offer to purchase RARE Hospitality International, Inc.'s outstanding common stock for $38.15 per share under a definitive agreement announced on Thursday. The offer is slated to begin on Aug. 31 and close sometime in October.
The per-share offer price is a 39% premium over RARE's average closing stock price for the past 30 days. Both companies' boards have unanimously approved the deal.
The total value of the all-cash transaction is an estimated $1.4 billion, including debt.
The agreement includes a termination fee equal to 2.9% of the fully diluted equity value of the transaction payable to Darden under certain circumstances.
With annual sales of $1 billion, Atlanta-based RARE owns, operates and franchises 317 restaurants, including 287 LongHorn Steakhouse restaurants and 28 Capital Grille restaurants. Darden, based in Orlando, Fla., owns and operates nearly 1,400 Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 restaurants with annual sales of $5.6 billion.
"The combined organization is strongly positioned to capture the long-term growth opportunity in full-service restaurants," Darden chairman and chief executive officer Clarence Otis said in a company news release. "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."
Darden said it will finance the acquisition through cash and newly committed credit facilities and that the acquisition should be neutral to its earnings per share in the fiscal year ending in May 2008, excluding one-time transaction and integration costs.
"We believe this transaction represents a compelling realization of value for RARE's shareholders, offers tremendous opportunity for our team members, and puts our brands even more firmly on a path to achieving their full potential," RARE chairman and CEO Philip J. Hickey, Jr., added.
"The purchase price represents a meaningful premium over our recent trading range, and a chance for our shareholders to capture the value that has been created at RARE over the last several years."
RARE's leadership will remain with the combined company, with RARE president and chief operating officer Gene Lee becoming president of Darden's new specialty restaurant group. The group includes Capital Grille, Bahama Breeze and Seasons 52. David George will continue as president of LongHorn Steakhouse, and John Martin will continue as president of Capital Grille.
Hickey agreed to act as an exclusive adviser to Otis and the Darden executive team for a 12-month period.
Darden was advised by Lehman Brothers Inc., Bank of America, and Wachtell, Lipton, Rosen & Katz. RARE was advised by Wachovia Securities, RBC Capital Markets, and Alston & Bird LLP.
| Acquirer: | Darden Restaurants, Inc.
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| Target: | RARE Hospitality International, Inc.
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| Transaction total: | $1.4 billion
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| Price per share: | $38.15
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| Termination fee: | Equal to 2.9% of the fully diluted equity value of the transaction
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| Announcement date: | Aug. 16
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| Expected closing: | Following end of tender offer in October
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| Stock price for target: | Nasdaq: RARE: $26.75 on Aug. 15
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