IHOP CEO Hopes to Re-Energize Applebee's by Franchising

Julia Stewart, chairman and chief executive officer of IHOP, told CNBC’s “Morning Call” that franchising will re-energize Applebee’s, which IHOP is acquiring for $2.1 billion.

IHOP, which franchises nearly all of its restaurants, plans to franchise a majority of Applebee’s 508 company-operated restaurants.

Stewart said brand differentiation through the menu, service and advertising will build brand loyalty. 

“We believe we have an opportunity to re-energize the brand and get franchisees, employees and guests all sort of thinking about the brand in a different way,” Stewart said Monday. “Obviously, we have opportunities to find points of differentiation – things that no one has but Applebee’s – and I think the future is very bright.”

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She said the deal will be largely funded by securitizing Applebee’s royalty income stream and other operations.

“The large majority of this transaction is being funded through Applebee’s, if you will, through a securitization,” Stewart said. “Of the $2.1 (billion), the large majority of it is through a securitization through them and a small second series of securitization through our own debt, about $175 million, and then some short notes. It’s really largely through using their securitization structure that we’re going to put into play and because we recently did one of those at IHOP, we feel very comfortable that we can do that in short order. When you think of a securitization, it’s securitizing (Applebee’s) royalty income stream as well as their company operations.”

She said IHOP doesn’t plan to make additional acquisitions anytime soon.

“Right now, we’ve got our hands full,” Stewart said.