IHOP to Acquire Applebee's for $2.1 Billion

IHOP Corp. said Monday it would acquire Applebee's International for about $2.1 billion, giving Applebee shareholders $25.50/share -- a 4.6% premium to Friday's close. The deal has been approved by both companies. Applebee's said in February it was looking to sell itself after activist investor Richard C. Breeden launched a campaign for board seats. It has tried largely unsuccessfully to lure higher-income diners with menu changes; analysts say it needs to remodel its restaurants' dated interiors. IHOP will need to undertake substantial debt to fund its offer, with the help of Lehman Brothers: its pre-merger market cap was just under $1 billion. The move joins IHOP's 1,300 family-style locations with Applebee's 1,900 mostly-franchised casual-dining restaurants. IHOP said it will sell Applebee's 508 company-owned restaurants in order to pay down some of the acquisition debt, while looking to sell more franchises domestically and abroad. Reviving the Applebee's brand, the Wall Street Journal says, may prove difficult, in part because of a bar & grill glut. The deal is expected to close in Q4. Applebee's shares are up 1.5% to $24.75 in pre-market trading. IHOP shares have gained 23.6% over the past year.

Sources: Press release, Wall Street Journal, MarketWatch
Commentary: Applebee's Buyout: Virtually a 'Take-Under' [24/7 Wall St.] • Darden on Casual Dining and the Future of Chain Restaurants • Applebee's High Flying Ex-CEO
Stocks/ETFs to watch: IHOP Corp. (IHP), Applebee's International Inc. (APPB). Competitors: Denny's Corp. (DENN), Ruby Tuesday Inc. (RT), Brinker International Inc. (EAT)

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