Applebee's International said on Friday negotiations with hedge-fund investor Breeden Capital failed to produce an agreement, after Breeden rejected the restaurant chain's offer of two board seats.
Breeden Capital, a fund run by former U.S. Securities and Exchange Commission Chairman Richard Breeden, owns 5% of Applebee's shares and has nominated four candidates for election to Applebee's board at the 2007 annual meeting. The board currently has 12 members.
The company said last month it was exploring a possible sale amid pressure from Breeden Capital to reduce capital spending, boost cash returned to shareholders and sell more restaurants to franchisees.
It said Breeden refused board seat offers twice this month.
On March 2, Applebee's said it offered a board seat to Breeden founding partner Steven Quamme if Breeden Capital would withdraw other nominees. After that proposal was rejected, Applebee's said it offered Breeden a second seat on its board, and was again refused.
Applebee's said over the past eight months, board members and company representatives had held numerous conversations with Breeden Capital and it continued to consider Breeden's comments regarding its business strategies.
The Overland Park, Kansas, restaurant operator has been hurt by a pullback in consumer spending as competition increases with other casual-dining chains. Last month, it said sales at restaurants open at least 18 months fell 4% in February as winter weather kept customers away.
"Despite our good faith attempts to reach out to Mr. Breeden and his firm throughout this process ... he has consistently rejected our overtures," Applebee's Chief Executive Dave Goebel said in the statement.
In response, the former SEC chief said the discussions with Applebee's failed to convince his fund that the chain's proposals were sufficient to result in changes it believes are needed to boost value in the long term.
"We believe that the best way to improve Applebee's declining performance and to reform unhealthy governance practices is for shareholder interests to have a strong voice in Applebee's boardroom," Breeden said in a statement.
"In the coming election, shareholders will have a choice to vote for the four incumbents representing the status quo, or for our four nominees seeking positive change," the statement from Breeden, whose firm is based in Greenwich, Connecticut, added.
"We expect the proxy battle to continue and believe it unlikely that Applebee's will make another similar offer," Friedman, Billings, Ramsey analyst Ashley Woodruff said in a research note.