Darden Restaurants, Inc. and RARE Hospitality International, Inc. Conference Call to Announce a Definitive Agreement Under Which Darden will Purchase RARE's Outstanding Common Stock - Final.(Conference notes)

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to the Darden Restaurants/RARE Hospitality combination conference call. At this time all participants are in a listen-only mode. Later there will be an opportunity for your questions and comments, instructions will be given at that time. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Matthew Stroud. Please go ahead.

MATTHEW STROUD, VP, IR, DARDEN RESTAURANTS: Thank you. Good morning, everyone. With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and COO; Brad Richmond, Darden's CFO; Phil Hickey, RARE's Chairman and CEO; Gene Lee, RARE's President and COO; and Doug Benn, RARE's CFO. We welcome those of you joining us by telephone or the Internet.

Yesterday we announced that Darden Restaurants would initiate a tender offer to purchase RARE Hospitality for $38.15 a share, a 39% premium over the average closing stock price for the past 30 days. This announcement was available on PR Newswire, First Call and other wire services. This morning we'd like to discuss with you the merits of this combination. We have a slideshow presentation that you should be able to access through the webcast link at Darden.com, RAREHospitality.com or VideoNewswire.com. After the presentation from Clarence, Phil and Brad we will take your questions.

During the course of this presentation Darden Restaurant's officers and employees may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended concerning the Company's expectations, goals or objectives. These forward-looking statements could address future economic performance, restaurant openings, various financial parameters or similar matters. By their nature forward-looking statements involved risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of these uncertainties are described in Darden Restaurant's and RARE Hospitality's Form 10-K, Form 10-Q and Form 8-K reports including all amendments to those reports.

These risks and uncertainties include successful completion of the proposed acquisition on a timely basis; the impact of regulatory review on the proposed acquisition; the ability to achieve synergies following completion of the proposed acquisition; the impact of intense competition; changing economic or business conditions; the price and availability of food, ingredients and utilities; labor and insurance costs; increased advertising and marketing costs; higher than anticipated costs to open or close restaurants; litigation; unfavorable publicity; a lack of suitable locations; government regulations; a failure to achieve growth objectives; weather conditions; risks associated with our plans to continue to improve financial performance at Bahama Breeze to support new restaurant growth; the closure and disposition of certain Smokey Bones restaurants and the anticipated sale of the remaining Smokey Bones restaurants; and other factors and uncertainties discussed in the Company's SEC filings.

Because of these numerous variables you are cautioned against placing undue reliance on any forward-looking statement made by or on behalf of the Company. Please note that this conference call is neither an offer to purchase nor a solicitation to sell securities. The tender offer for RARE common stock described in yesterday's press release has not commenced. When the tender offer does commence investors should review Darden's tender offer statement and RARE's recommendation statement that will be filed with the SEC as they will contain important information regarding the details of the tender offer and RARE's Board's views regarding the acquisition. Now I'd like to turn it over to Clarence.

CLARENCE OTIS, CHAIRMAN, CEO, DARDEN RESTAURANTS: Thank you, Matthew. We are delighted to share the details of what is a very exciting combination. It's a combination that brings together two of the most successful organizations in the restaurant industry, organizations that are aligned, really when it comes to both our cultures and our philosophies, about how to run the business. As we look at this combination it's got stronger growth outlook, stronger value creation prospects than either company has by itself.

At Darden we really see this as elevating our profitable sales growth rate. Those of you who know us know that that's been a business imperative of ours for some time and it also buttresses the RARE concept's ability to achieve national penetration and that's been a strategic priority of theirs for a very long time.

As we look at this, it's also supported by some significant cost synergies and complementary capabilities and we're going to get into those in a moment. Let me begin though by reviewing some of the important transaction highlights.

As Matthew mentioned, the offer price per share is $38.15 -- that represents a premium to the 30-day average closed share price of RARE of about 39%. Total purchase price is $1.4 billion and that will be 100% cash. The structure, again as Matthew mentioned, is a cash tender offer recommended to shareholders by RARE Hospitality's Board and the most significant condition is that a majority of the shares will be tendered.

We are also looking at regulatory approval as a condition. From a timing perspective we expect to close in October of this year. And as we look at it and the financial impact to Darden, we believe it will be accretive to earnings after-tax for our fiscal year 2008 and that's the fiscal year that ends at the end of May. We think from an EPS perspective it will be breakeven in fiscal 2008 and accretive after that. And our advisors, the advisors to Darden have been Lehman Brothers and Bank of America.

To put this transaction in context and make sure you understand that it continues the direction that we've been headed in, what I'd like to do is just step back, give you a sense of how we come to this point. And it's context that really is quite familiar to those of you who've followed us closely. As we look back it's clear that Darden's has a very strong track record and that strength is reflected both near-term and long-term.

From a near-term perspective we've had competitively superior same restaurant sales and earnings growth over the last several years and that's really been driven by the strength of our brands, it's been driven by very good cost management and we've had that happen in an industry where the environment has been challenging. Longer-term we've had competitively superior earnings growth and total shareholder return over the past decade and you see that on slide 6.

From an earnings growth perspective 21% annualized earnings growth over the decade ended at the end of calendar 2006, that's well ahead of the S&P 500 median and it also is better than some of our best direct competitors. Total shareholder return over that same decade has been nearly 22%, that's well within the top quartile of the S&P 500. And again, it's also above some very strong direct competitors.

And these results, we talked about it before, reflect a solid operating platform and that platform has two parts -- a strong culture and a proven approach to managing in this business and slide 7 outlines some of the elements of our strong culture. It includes really a compelling core purpose that motivates everybody in our organization. We talk about nourishing and delighting everyone we serve and that's about making a positive difference in the lives of others. It includes some strong values; those values speak to how we treat one another and how those that we encounter should expect to be treated.

And then finally, we share what we think is a pretty inspiring goal and that's to be the best in casual dining now and for generations. We pair that, as I said, with a proven approach to the business. That approach has four elements -- superior leadership, and when we talk about that we really talk about leadership that gets results, but with a balanced emphasis on achieving results and getting those results the right way, demonstrating great leadership behaviors. Brand management excellence is something we value and we talk about really excellence that allows us to create and evolve well-defined, relevant, differentiated guest experiences, restaurant operations support excellence so that we can deliver on those brand promises. And then finally, restaurant support excellence that facilitates both brand management and restaurant operations excellence.

Now with all that we've accomplished there's been one area where we know we've fallen short of what we've looked for and that really has to do with total sales growth. Total sales growth at Darden has lagged casual dining chains as a group and that's primarily, as you look at the chart on page 9 -- or slide 9, that's mainly been because of shortfalls in new restaurant growth. We've been competitively superior, as I …