The Big News September 2007 — Industry Consolidation Continues
DARDEN COMMENCES OFFER FOR RARE—ORLANDO , Fla. (Aug. 31) Darden Restaurants Inc. on Friday commenced its tender offer to acquire all outstanding shares of common stock of Rare Hospitality International Inc. for $38.15 per share. The two restaurant companies announced Aug. 16 that they had agreed to a merger in which Darden is purchasing the steakhouse operator for about $1.4 billion, including debt, making it one of the largest strategic purchases in the industry. The purchase is being made for Darden through its wholly owned subsidiary Surf & Turf Merger Corp. The $38.15 per-share price is a 39-percent premium over Rare's average closing stock price for the 30 days prior to the announcement.
The tender offer expires at midnight EDT on Sept. 28.
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 deal is expected to close in October.
Atlanta-based Rare operates or franchises 317 restaurants, including 287 LongHorn Steakhouse restaurants and 28 Capital Grille restaurants. All but a few LongHorn units outside of the country are operated by the company. Rare recently shed its Bugaboo Creek Steakhouse brand. It posts total annual 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.
At the time of the announcement, Clarence Otis, chairman and chief executive of Darden, said: "The combined organization is strongly positioned to capture the long-term growth opportunity in full-service restaurants. 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, 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.
FOCUS COMPLETES MOE'S SOUTHWEST GRILL DEAL—ATLANTA (Aug. 30) Multiconcept franchisor Focus Brands Inc. said it has completed its purchase of franchising rights to Moe's Southwest Grill and other assets of the fast-casual chain from Raving Brands. Terms of the deal were not disclosed. After the sales agreement was announced in April, a source close to the bidding said Focus would pay $120 million to $140 million, or 10 times Moe's earnings before interest, taxes, depreciation and amortization. The source provided the information on the condition that he not be identified.
Moe's, formerly Raving's flagship brand, franchises 360 burrito restaurants in 34 states. With the addition of those contracts, Focus now operates or franchises more than 10,000 outlets in 50 states and 32 counties. Its other brands include Schlotzsky’s, Carvel and Cinnabon. Only the Schlotzsky’s chain currently includes company-operated units, and those are limited to a few dozen.
Focus itself is a holding of Roark Capital, the Atlanta-based private-equity firm. Focus and Raving also are based in Atlanta.
The deal pares Raving's portfolio of franchise concepts to Doc Green's Salads and Grill, Mama Fu's Asian House, Planet Smoothie, Shane's Rib Shack, PJ's Coffee and the Flying Biscuit. Its lone non-foodservice operation is Monkey Joe's, a chain of 12 indoor play areas, and all of its restaurant brands except the Flying Biscuit are quick-service concepts. Every chain but Flying Biscuit is virtually all franchised.
At the time the sale of Moe's was announced, Raving president Stephen M. LaMastra said the company intended to function as an "incubator" for its still-emerging other brands.
SUN CAPITAL BUYS BOSTON MARKET—BOCA RATON, Fla.-- (BUSINESS WIRE) -- Sun Capital Partners, Inc. (“Sun Capital”), a leading private investment firm specializing in leveraged buyouts and investments in market-leading companies, today announced that one of its affiliates has acquired Boston Market Corporation (“Boston Market”), a non-core business unit of McDonald’s Corporation (NYSE:MCD). Terms of the acquisition were not disclosed.
Effective immediately, Richard K. "Rick" Arras has been appointed president and CEO of Boston Market replacing Michael Andres who will be leaving the Company to return to McDonald's Corporation. Mr. Arras most recently served as president, CEO, and partner of Wi-Tenn Restaurants, L.L.C., a franchise developer and operator of O'Charley's Restaurants. Prior to Wi-Tenn Restaurants, he has held a number of senior leadership roles including president and CEO of Shoney's Restaurants and president and COO of Cracker Barrel Old Country Stores (NASDAQ - GS:CRBL). He began his career as a management trainee with Perkins Family Restaurants in 1979, and from 1988 to 1998, he served as Perkins’ president and COO. Arras received a Bachelor of Science degree from the United States Military Academy at West Point and served as a commissioned officer in the U.S. Army for six years. While at Perkins, he received a Masters of Business Administration from Memphis State University.
Gary M. Talarico, Managing Director, said, “We are pleased to announce the appointment of Rick Arras as Boston Market’s new president and CEO. Rick brings the right mix of leadership skills and experience to Boston Market given his 28-years of service in executive management in the family dining segment of the restaurant industry.”
Talarico, added, “We are excited about Boston Market’s growth opportunities in its unique niche as a healthy meal replacement alternative for active and working families. Leveraging its strong brand name and reputation for quality food, we also see significant growth potential in frozen foods through the Company’s relationship with H.J. Heinz Company (NYSE:HNZ) and prepared foods sold through grocery stores, two business segments that have enjoyed double digit growth in the past several years."
Rick Arras, newly-appointed President and CEO of Boston Market Corporation, commented, “I am very pleased to have joined Boston Market at this exciting point in its evolution and to partner with Sun Capital Partners, a financial sponsor with deep operating experience in the restaurant industry. As a stand-alone entity, Boston Market will be able to pursue its own strategic objectives and focus on expanding its national network of stores, while maintaining superlative customer service, and new product offerings. I am looking forward to the challenge and to working with our management team as we move Boston Market to the next level of performance.”
SMITH & WOLLENSKY PURCHASE COMPLETED—NEW YORK (Aug. 29) Nick Valenti and Joachim Splichal of Patina Restaurant Group, together with the private-equity firm Bunker Hill Capital, on Tuesday completed their $94.7 million acquisition of the Smith & Wollensky Restaurant Group, the fine-dining operator based here.
The deal called for the subsequent sale of certain SWRG restaurants and management contracts to a newly formed company called Fourth Wall LLC and Alan Stillman, the acquired company's founder and chief executive at the time of Tuesday's transaction. That related sale, valued at about $6.9 million, has also been completed. Among the assets involved were leases to the Quality Meats and Park Avenue Summer restaurants, both in New York, and management contracts to Post House, Maloney & Porcelli and the original Smith & Wollensky steakhouse, all also in New York. The Smith & Wollensky prototype is owned by St. James Associates and was not part of the deal with Valenti, Splichal and Bunker Hill.
Valenti and Splichal are chief executive and founder, respectively, of Patina Restaurant Group, a caterer and operator of fine-dining restaurants on the East and West coasts. The $11-a-share buyout gives them and Bunker Hill, a Boston-based private-equity firm affiliated with Valenti, ownership of Smith & Wollensky steakhouses in Miami Beach, Fla.; Chicago; Las Vegas; Washington, D.C.; Philadelphia; Houston; Boston; and Columbus, Ohio. The arrangement calls for the upscale properties to be managed by Patina.
The buyers have said they were scouting for new Smith & Wollensky locations even before the deal had been consummated.
Patina Restaurant Group operates a variety of high-end restaurants across the country, including the Sea Grill at Rockefeller Center in New York, Patina restaurant in the Walt Disney Concert Hall in Los Angeles and Pinot Brasserie in Las Vegas, as well as a number of on-site foodservice accounts throughout Southern California.
SHAREHOLDERS APPROVE FRIENDLY BUYOUT—WILBRAHAM , Mass. (Aug. 29) Shareholders in Friendly Ice Cream Corp., the operator or franchisor of 515 Friendly’s family-dining restaurants, approved on Wednesday a buyout of the company by Sun Capital Partners Inc. affiliate Freeze Operations Inc. in a deal valued at $337.2 million, including debt. The transaction, which was first proposed in June and calls for Friendly shareholders to receive $15.50 per share in cash, is expected to close Thursday. Based on the preliminary results from the restaurant company’s annual shareholder meeting, about 98.5 percent of the ballots, which represented 6.7 million shares, were cast in favor of the merger, the company reported.
When the deal was announced, Friendly had said that activist investor Sardar Biglari, chairman of Western Sizzlin’ Corp. and head of The Lion Fund, entities through which he held a 15-percent stake in Friendly, would vote in favor of the deal. Biglari had been pushing Friendly to explore strategic options, which the company started to do in March.
Other shareholders, including company chairman Donald Smith and the Friendly’s concept co-founder, S. Prestley Blake, who had battled over the future of the company, also both voted in favor of the transaction. Together, Smith, Biglari and Blake controlled more than 50 percent of the company’s shares.
Earlier this month, Friendly also reported that its note holders had delivered consent for the acquisition.
Sun Capital is a private-equity fund based in Boca Raton, Fla., that has invested in or managed more than 155 companies with aggregate sales of more than $35 billion. The company’s restaurant holdings include Bruegger’s, Fazoli’s, Garden Fresh and Real Mex Restaurants, among others. The company closed on its purchase of Boston Market Corp. from former parent company McDonald’s Corp. earlier this month. Terms of that deal were not disclose