Olive Garden owner to buy Chuy's for $605 million

The deal comes as both restaurant companies have been struggling with a downturn in customer traffic

AUSTIN (KXAN) - The company that owns Olive Garden, Longhorn Steakhouse and other chains just agreed to buy the Tex-Mex chain Chuy's.

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

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.

"We are excited about the opportunity to join the Darden family and its portfolio of well-respected brands. Darden shares many of our same core values, particularly our operating philosophy and strong team member cultures," Chairman, CEO and President of Chuy's Steven Hislop said in the release. "Together we will accelerate our business goals and bring our authentic, made-from-scratch Tex-Mex to more guests and communities."

In the $605 million transaction for the restaurant chain, Darden said it wanted to "acquire all of the outstanding shares of Chuy's," according to a press release.

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 over 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.

Hislop said the acquisition will accelerate Chuy's business goals and expand the brand to more communities.

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.

The Associated Press contributed to this report.