Darden's Steak Out

Will the last publicly traded casual steakhouse chain please sweep up the peanut shells on the way out? Darden Restaurants (NYSE: DRI  ) is acquiring LongHorn Steakhouse parent RARE Hospitality (Nasdaq: RARE  ) in a $1.4 billion deal that will cash out RARE investors at $38.15 a share.

It's a generous offer, awarding investors a 39% premium to yesterday's $27.51 close. Then again, Darden is desperate, and there aren't too many steakhouse chains left to gnaw on. We've seen the parent companies of Outback, Lone Star Steakhouse, and Roadhouse Grill bought out over the past year.

It may have simply come down to picking between LongHorn Steakhouse and Texas Roadhouse (Nasdaq: TXRH  ) , though going with RARE also nabs Darden a proven high-end chophouse in Capital Grille.

And you better believe that Darden was hungry for a carnivore concept. It's had no problem growing its Red Lobster and Olive Garden chains, but it just didn't have a clue with its Smokey Bones concept. It decided to unload the BBQ joint earlier this year, and now it's clear that it wanted to lasso a meat-based eatery to take its place.

Yes, it could have gone with a proven barbecue chain like Famous Dave's (Nasdaq: DAVE  ) . It could have also gone upscale and seen whether Ruth's Chris (Nasdaq: RUTH  ) or Morton's (NYSE: MRT  ) were available. Instead, it simply doubled its pleasure with RARE.

RARE watches over 287 LongHorns and 28 Capital Grilles. Darden has the financial muscle to grow either chain into a national juggernaut. It will have to, in order to justify paying just more than 21 times next year's projected earnings for RARE. Darden insists that the acquisition won't have an impact on earnings per share beyond merger-related items, but Darden is trading at just 14 times forward earnings.

The deal also helps continue a trend set by IHOP (NYSE: IHP  ) last month, when it agreed to snap up Applebee's. Instead of private equity being the top draw in acquiring casual dining concepts, fellow public companies are consuming one another to keep everything in the publicly traded family.   

So go ahead and eat up, Darden. Just don't forget to wear a bib.

Longtime Fool contributor Rick Munarriz is always on the lookout for a good steakhouse, and thankfully has plenty in Miami. He does not own shares in any of the companies mentioned in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy likes its cuts well done.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 534144, ~/Articles/ArticleHandler.aspx, 12/18/2014 2:38:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement