Through The Fly's Eyes: IHop Corp & Applebee's

From Kevin Shult of Theflyonthewall.com









IHOP Takes on Applebee's

IHOP Corp (IHP), the pancake house we all know and love, has acquired the largest casual-dining restaurant chain, Applebee’s International (APPB), for $2.1 billion, or $25.50 a share, a 4.6% premium to Friday’s closing price.

A sale was long in the works for Applebee’s shareholders. The company put itself on the block after investor Richard C. Breeden, a former SEC Chairman, campaigned for board seats in February. Applebee’s has also been attempting to pull itself out of one of the worst industry slumps in years. Higher food and gasoline prices, coupled with depressed housing market, have hurt middle-class America, the group which Applebee’s built its empire around.

This is a brave move for IHOP Corp, whose market cap is around half the size as Applebee’s. The pancake house will require substantial debt to pay for the “Bee.” However, according to Forbes, the company appears to have a plan. IHOP Corp will sell the majority of Applebee’s 500 company-owned stores to pay down some of the debt, and focus on expanding franchising units in the U.S. and abroad. The cash generated from Applebee’s real estate is also expected to create a shareholder buyback plan.

It looks like IHOP made a good move. With the company reporting last week that same store sales climbed 2.5%, and expectations for the acquisition to be accretive to earnings by next-year, American’s can have their Rooty Tooty Fresh ‘N Fruity along with Tyler Florence’s latest innovative dish – and everything will show up on IHOP’s bottom line.