Enter multiple symbols separated by commas

Rare Hospitality Shares Surge on Darden's $1.19 Billion Offer

Rare Hospitality International shares soared Friday as investors welcomed news that the company, which operates the Longhorn Steakhouse chain, will be acquired by Darden Restaurants.

Rare shares skyrocketed more than 35 percent, at one point reaching a new yearly high of $37.43. The stock has traded between $26.05 and $34.48 during the past 52 weeks.

Darden, the operator of the Olive Garden and Red Lobster restaurant chains, agreed after the market closed Thursday to buy Rare, which also owns the Capital Grille concept, for about $1.19 billion.

The price jump brought the shares closer to Darden's purchase price of $38.15 per share, which represents a premium of 39 percent to Rare's closing price of $27.51 Thursday.

Most analysts saw the deal as a boon to Rare shareholders due to the high purchase price.

Thomas Weisel Partners analyst Matthew DiFrisco called the buyout "attractive" for shareholders, adding that the company will be an asset to Darden since it is poised for profit growth in 2008.

"While we expect 2007 to be a challenging year for Rare, we anticipate earnings per share growth in the mid-teens in 2008," he said in a note to investors.

Despite the company's capacity for earnings growth, several analysts were less than enthused about the deal.

KeyBanc Capital Markets analyst Lynne Collier cut her rating on Rare's shares to "Hold" from "Buy" and J.P. Morgan analyst John Ivankoe said in an analyst note he wished Darden hadn't agreed to the deal at all.

"Rare has been often mentioned target for Darden, but we wished Darden would have used its balance sheet to repurchase shares or pay higher dividends," Ivankoe said. "This is an acquisition where positives, in terms of strategic and management capabilities that Darden can bring to Rare's brands, are partially offset by the inherent risk attached to any restaurant acquisition."

Darden shares fell almost 4 percent Friday. The price drop comes as many stocks soared Friday after the Federal Reserve cut the discount rate on loans it makes to banks by half a percentage point.

Contact U.S. News


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

  • Jac Jagaciak

    One of Victoria's Secret's newest "angels," Monika "Jac" Jagaciak, talks about what it's like to be a lingerie model and her craziest shoot.

  • Jessica Alba

    The actress' company got burned after consumers came out in droves, saying the company's sunscreen doesn't provide much sun protection at all.

  • Joe Biden and Hillary Clinton.

    Clinton's allies do not hide their annoyance at the implication by Biden's advisers that she is vulnerable. The NYT reports.

U.S. Video