ORLANDO, Fla. - Darden Restaurants, Inc. (NYSE:DRI), the owner of restaurant chains including Olive Garden and LongHorn Steakhouse, has agreed to acquire Chuy's Holdings, Inc. (Nasdaq: NASDAQ:CHUY), a Texas-based Tex-Mex restaurant chain, for $37.50 per share in an all-cash transaction valued at approximately $605 million. The acquisition is expected to close in Darden's fiscal second quarter, following customary closing conditions and approval by Chuy's shareholders.
Chuy's, known for its authentic, made-from-scratch Tex-Mex dishes and eclectic dining atmosphere, currently operates 101 restaurants across 15 states. For the twelve months ending March 31, 2024, Chuy's reported over $450 million in revenues and average annual restaurant volumes of $4.5 million. Darden's President and CEO Rick Cardenas expressed confidence in the strategic fit of the acquisition, highlighting Chuy's strong performance and growth potential.
The transaction, which has been unanimously approved by the boards of both companies, offers a 40% premium to Chuy's 60-day volume-weighted average price. Darden anticipates pre-tax net synergies of about $15 million by the end of fiscal 2026 and expects the deal to be neutral to its diluted net earnings per share for fiscal 2025, excluding acquisition and integration-related expenses.
Chuy's Chairman, CEO, and President Steven Hislop welcomed the deal, noting shared core values and operating philosophies between the two companies. Darden has ensured it has sufficient liquidity for the all-cash transaction and plans to continue its capital allocation priorities, including maintaining and growing its restaurant portfolio and returning capital to shareholders.
The definitive merger agreement includes a 30-day "go-shop" period allowing Chuy's to solicit alternative proposals. Financial advisors for the deal include BofA Securities for Darden and Piper Sandler for Chuy's, with legal advice provided by Hunton Andrews Kurth LLP and Winston & Strawn LLP, respectively.
This news is based on a press release statement.
In other recent news, Chuy's Holdings experienced mixed reactions from analysts following its Q1 2024 earnings report. The Tex-Mex restaurant chain reported a slight decrease in revenue to $110.5 million, largely attributed to a calendar shift, though the company's earnings per share (EPS) of $0.42 surpassed both Stifel's and the consensus estimate of $0.36. Despite this, Chuy's experienced a same-restaurant sales decline of 5.2%, steeper than anticipated by analysts.
Analysts from Jefferies, Stifel, and Piper Sandler adjusted their stance on Chuy's, citing concerns about the restaurant chain's projected sales and traffic performance. Jefferies downgraded Chuy's stock from Buy to Hold and reduced the price target to $24. Stifel reduced its price target for Chuy's from $36 to $32, while Piper Sandler adjusted its price target for Chuy's to $31 from $35.
These adjustments come as Chuy's continues to focus on growth, planning to open 6-8 new restaurants in 2024 and expecting to see improved trends in the second half of the year as new off-premise initiatives take hold and new menu items attract customers. Despite the challenges, Chuy's remains optimistic about its future, reiterating its EPS guidance for the year, projecting between $1.82 and $1.87.
InvestingPro Insights
As Darden Restaurants sets its sights on expanding its portfolio with the acquisition of Chuy's Holdings, it's important to consider the financial health and market performance of the Tex-Mex chain. Chuy's has shown resilience and growth potential, reflected in its solid financial metrics. The company's market capitalization stands at a robust $435.75 million, and it has been trading at an attractive P/E ratio of 13.27, based on the last twelve months as of Q1 2024. This is indicative of the company's earnings strength relative to its share price.
Investors may also find Chuy's growth prospects appealing, as evidenced by a recent surge in the stock price, with a significant return of 7.78% over the last week. This momentum could be a positive sign for Darden, suggesting a favorable market response to Chuy's business strategies and potential for future growth. Additionally, Chuy's has demonstrated financial prudence, with liquid assets surpassing its short-term obligations, which is reassuring for stakeholders considering the company's fiscal responsibility.
For those interested in further insights and metrics, there are additional InvestingPro Tips available, including analysis on Chuy's share buyback initiatives and near-term earnings growth projections. To explore these in-depth insights, visit InvestingPro's CHUY page and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking even more valuable investment information.
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