IHOP and
Applebee's recently announced an agreement under which IHOP will
acquire Applebee's International, Inc. ('Applebee's') for $25.50
per share in cash. The total transaction will have an estimated
value of $2.1 billion.
IHOP has successfully re-energized its nearly 50-year old brand
over the last five years, while transforming itself into a
pure-play franchisor with more than 99% of its 1,319 restaurant
system owned and operated by franchisees. The company believes that
it can employ similar strategies to transform and re-energize
Applebee's.
Julia Stewart, IHOP Chairman and CEO, who will lead the management team of the combined Company, said, 'Over the past year and a half, we have been evaluating alternatives that would allow us to leverage IHOP's proven competencies in order to create additional long-term value for shareholders, including a potential acquisition. Applebee's meets all of our acquisition criteria and we expect the combination to generate significant additional value for our shareholders.'
The transaction is expected to result in earnings accretion, exclusive of one-time transaction-related charges, in 2008 and beyond. The acquisition of Applebee's is also expected to substantially enhance IHOP's cash generating profile. Following the closing of the transaction, IHOP intends to utilize cash to reduce debt to a specified level and thereafter return cash to shareholders. The following initiatives are expected to generate increased cash flow in the combined entity:
• Franchising the majority of Applebee's 508 company-owned and operated restaurants;
• Reducing related General & Administrative expenses as those restaurants are franchised;
• Selling Applebee's-owned real estate and executing related leasebacks;
• Reducing capital expenditures as Applebee's is transitioned quickly out of its more capital intensive company operations model; and
• Re-energizing Applebee's brand, driving same-store sales performance and improving the system's operational performance and profitability.
