Darden Restaurants buys Tex-Mex chain Chuy's for $605 million

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Darden Restaurants is adding Tex-Mex to the menu.

The parent company of Olive Garden, LongHorn Steakhouse, Yard House and other chains, said Wednesday it's buying Chuy's for approximately $605 million.

Darden said it will acquire all outstanding shares of Chuy’s for $37.50 per share. Those shares closed at $25.27 apiece on Wednesday, then soared past $37 in after-hours trading once the deal was announced. Darden shares fell 1% in after-hours trading.

Darden said the boards of Darden and Chuy's have unanimously approved the acquisition. The deal is expected to close later this year, if it's approved by Chuy's shareholders.

Chuy’s Holdings Inc. was founded in Austin, Texas, in 1982. It now operates 101 restaurants in 15 states and has 7,400 employees. It's known for its eclectic decor and fresh food, including handmade tortillas and sauces.

Like Darden, Chuy's owns and operates all of its restaurants. Darden President and CEO Rick Cardenas said Chuy's is a differentiated brand with strong growth potential that will expand Darden's dining options.

Darden, based in Orlando, Florida, operates more than 1,900 restaurants and has 190,000 employees. It also owns Ruth's Chris Steak House, Cheddar's Scratch Kitchen, The Capital Grille, Seasons 52, Eddie V's and Bahama Breeze.

“Based on our criteria for adding a brand to the Darden portfolio, we believe Chuy's is an excellent fit that supports our winning strategy,” Cardenas said in a statement.

Chuy's Chairman, CEO and President Steven Hislop said the acquisition will accelerate Chuy's business goals and expand the brand to more communities.

The deal comes as both restaurant companies have been struggling with a downturn in customer traffic due to consumer concerns about inflation.

In Darden's fiscal fourth quarter, which ended May 26, same-store sales — or sales at restaurants open at least a year — were flat compared to the prior year. Chuy's same-store sales were down 5% in its first quarter, which ended March 31.

Investment bank Jefferies downgraded shares for both restaurant chains earlier this month, saying they're being squeezed by price promotions at fast-food chains like McDonald's as well as at casual dining peers like Chili's and Applebee's.