U.S. News

IHOP CEO Tells CNBC: Franchising Can Revive Applebee's


Pancake restaurant IHOP, which agreed to buy Applebee's Internationalfor $2.1 billion, or $25.50 per share, hopes to revive the struggling casual-dining chain through franchising, the CEO told CNBC.

IHOP Corp.

“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,” Julia Stewart, IHOP's chairman and chief executive officer, said. “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.”

Applebee's has been hit hard by weakened consumer spending and stiff competition from rivals, as well as grocery chains' efforts to sell more prepared meals.

IHOP , meanwhile, has been seeking new growth opportunities following a recent restructuring that has transformed it into a franchiser with more than 99 percent of its 1,319 restaurants owned and operated by franchisees.

The companies said the all-cash deal, which represents a 4.6 percent premium to Applebee's closing price on Friday, was worth $2.1 billion.

Excluding charges related to the acquisition, IHOP expects the transaction to add to earnings beginning in 2008.

IHOP, which franchises almost all of its restaurants, said it believes it can cut costs and re-energize the struggling bar-and-grill chain by franchising a substantial majority of
Applebee's 508 company-operated restaurants.

Applebee's also has about 1,400 franchised restaurants.

IHOP Chairman & CEO

IHOP said it also plans marketing and operational improvements it hopes will boost cash flow over time, which it will use to pay down debt.

Applebee's said earlier this year it was reviewing strategic alternatives for its business and that in April it had received several takeover proposals.

Greenhill advised IHOP, and Banc of America Securities advised Applebee's on the deal, which the companies expect to close in the fourth quarter of 2007.