Darden Agrees to Buy Cheddar’s Scratch Kitchen for $780 million
A November study by Market Force Information revealed, in a surprising twist, that Cheddar’s Scratch Kitchen had unseated Cracker Barrel as America’s favorite chain. It was the first time the 165-unit chain even earned votes to be included in the rankings.
The Texas-based brand made an even bigger splash on Monday.
Darden Restaurants, Inc., parent company to Olive Garden, LongHorn Steakhouse, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s, and Yard House announced it agreed to acquire Cheddar’s for $780 million in an all-cash transaction from its stockholders, including private equity firms L Catterton and Oak Investment Partners.
Cheddar’s was founded in 1979 in Arlington, Texas, and currently has 140 owned and 25 franchised locations across 28 states. The average annual restaurant volume is $4.4 million, according to Darden.
"We are excited about the opportunity to be a part of Darden. Our operating philosophy and values are similar, and we believe this transaction provides a great opportunity for our team members to continue to grow and develop in their careers. Additionally, Darden's expertise will enable us to further capitalize on our growth potential," says Ian Baines, Cheddar's CEO.
Total acquisition and integration-related expenses are expected to be around $25 to $35 million, and the transaction is expected to be accretive to Darden's diluted net earnings per share in fiscal 2018 by around 12 cents, excluding any acquisition and integration-related expenses.
Darden will also pay $10 million for certain Cheddar's transaction-related tax attributes and reimburse its equity holders for pre-closing capital expenditures on new restaurants under development.
Baines will remain with the company as president of Cheddar’s and report to Gene Lee, Darden’s president and CEO. Darden expects the transaction to be completed in fiscal 2017 quarter four.
"Cheddar's is an undisputed casual dining value leader with broad appeal and strong average restaurant volumes," says Darden CEO Gene Lee in a statement. "Cheddar's is a great fit in the Darden portfolio because it complements our existing brands. This addition will also enable Darden to further strengthen two of our most important competitive advantages: our significant scale and our extensive data and insights."
Darden also reported its financial results for the third quarter ending February 26.
Total sales from continuing operations increased 1.7 percent to $1.88 billion. Reported diluted net earnings per share from continuing operations increased 57.1 percent to $1.32 and increased 9.1 percent from last year's adjusted diluted net earnings per share.
Same-restaurant sales were also up 0.9 percent for the quarter. This includes a 1.4 percent boost at Olive Garden; 0.2 percent at LongHorn; 4.7 percent at Eddie V’s; 0.9 percent at The Capital Grille; 0.8 percent at Seasons 52; and 0.5 percent for Bahama Breeze. Yard House was the only brand to report a decline at 1 percent.
"We continued to gain market share as we outperformed industry same-restaurant sales by a considerable margin again this quarter," Lee says in a statement. "Our teams remain incredibly focused on driving strong operating fundamentals, and I'm very proud of the work they are doing to create memorable experiences for our guests."