Darden (NYSE: DRI) has been actively seeking an acquisition candidate for months, and now it has one. The parent company of Olive Garden and Red Lobster has agreed to pay $1.4 billion for Rare Hospitality (NASDAQ: RARE). The acquisition will bring Longhorn Steakhouse and The Capital Grille into the Darden fold. It will give RARE shareholders a lovely 39% premium.
The deal finally gives Darden a steakhouse, something it has always lacked. Rare only has 317 owned or franchised restaurants, indicating that this is the proven concept not yet built-out that Darden had been hoping for.
Darden will pay for Rare Hospitality with cash, a new $1.2 billion senior interim credit facility and a $700 million senior revolving credit facility.
Time will tell whether Longhorn and Capital are the brands that will drive growth for Darden. The company had unsuccessfully tried to launch its own new concept, Smokey Bones, but the chain fizzled and stores were closed and the brand was sold. So Darden gave up on developing a new brand, and coughed up the cash to buy an established one.
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