* All-cash deal expected to close in Darden's fiscal Q2
* Darden said will be accretive in fiscal 2014
* Yard House operates 39 restaurants in 13 states
* Shares down more than 1 percent
By Lisa Baertlein
July 12 Olive Garden owner Darden Restaurants Inc on Thursday said it agreed to buy bar and grill restaurant operator Yard House USA Inc for $585 million in cash, a deal that will give it access to younger and more affluent diners.
Darden, which also owns the Red Lobster and LongHorn Steakhouse chains, said it would scale back its share buybacks as a result of the planned Yard House acquisition. Stock in the company slipped 1.4 percent on the news.
Darden now plans fiscal 2013 share repurchases of about $50 million, down from the $200 million to $250 million previously projected.
Sellers of the 39-restaurant chain known for its broad menu of premium beer and American-inspired food are private equity firm TSG Consumer Partners LLC, Yard House management and investors.
Partners Steele Platt, Harald Herrmann and Carlito Jocson opened the first Yard House on the waterfront in Long Beach, California, in 1996. The restaurants, which are now in 13 states, peddle food like burgers, truffle fries and Ahi Poke, a Hawaiian staple.
Yard House has posted healthy growth in recent years, despite the chain's heavy presence in economically hard-hit states like California, where it has 17 restaurants, Darden Chief Executive Clarence Otis said on a conference call with analysts.
Otis said Yard House would give Darden "greater exposure to both younger and financially resilient customers" and he expects the chain could ultimately have 150 to 200 units across the United States.
Herrmann, Yard House's president and CEO, will remain in that role after the deal closes and report to Gene Lee, president of Darden's Specialty Restaurant Group.
Jocson will stay on as executive chef.
Platt, Yard House's chairman, does not have a day-to-day position at the company and will not join Darden, a Darden spokesman said.
The deal is expected to close early in Darden's fiscal second quarter ending Nov. 25 and includes about $30 million of cash tax benefits that are expected to be realized by Darden in fiscal 2013 and fiscal 2014.
Darden's 2013 fiscal year began on May 28.
The company expects the purchase to reduce its fiscal 2013 diluted net earnings by about 3 to 5 cents per share, including acquisition-related costs of 7 to 10 cents per share.
As a result of the deal, Darden lowered its 2013 forecast for earnings per share growth from continuing operations to a range of 5 to 9 percent from 8 to 12 percent previously. The company said the change reflects the acquisition costs as well as about 5 cents per share associated with the company's plan to buy back less stock.
Darden said the purchase should add 10 to 12 cents per share to Darden's fiscal 2014 earnings, including 2 to 3 cents of acquisition costs. In 2015, it expects the deal to increase earnings per share by 18 to 20 cents.
The purchase is subject to regulatory approval and other closing conditions.
J.P. Morgan and Sidley Austin LLP advised TSG Consumer Partners, which invested in Yard House in 2007. Goldman, Sachs & Co and Hunton & Williams LLP advised Darden.