This excerpt taken from the DIN 8-K filed Jul 16, 2007.
Glendale, Calif. and Overland Park, Kan., July 16, 2007 IHOP Corp. (NYSE: IHP) and Applebees International, Inc. (NASDAQ: APPB), today jointly announced a definitive agreement under which IHOP Corp. (IHOP) will acquire Applebees International, Inc. (Applebees) for $25.50 per share in cash, representing a total transaction value of approximately $2.1 billion.
Over the last five years, IHOP has successfully re-energized its nearly 50-year old brand while transforming itself into a pure-play franchisor with more than 99% of its 1,319 restaurant system owned and operated by franchisees. IHOP believes that it can employ similar strategies to transform and re-energize Applebees. IHOP intends to franchise a substantial majority of Applebees 508 company-operated restaurants and expects to realize significant cost savings as a result. Additionally, management will focus on driving marketing and operational improvements aimed at re-energizing Applebees system performance. These changes are expected to result in significant and increasing cash flow over time, which will be used to initially reduce debt incurred in connection with the acquisition. Once debt levels are reduced, IHOP intends to return to its long-term commitment of returning cash to its shareholders through share repurchases. At present, IHOP expects to continue quarterly dividend payments at the discretion of its Board of Directors.
IHOP Chairman and Chief Executive Officer Julia Stewart, 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 IHOPs proven competencies in order to create additional long-term value for shareholders, including a potential acquisition. Applebees meets all of our acquisition criteria and we expect the combination to generate significant additional value for our shareholders.
Added Ms. Stewart, We look forward to applying the same focus and discipline to Applebees that we have employed at IHOP over the last several years. We have successfully restructured our own company, and in the process, re-energized our brand, improved our operational performance and maximized the development of franchise restaurants.
This transaction represents the culmination of a comprehensive strategic alternatives process led by the Strategy Committee of our Board of Directors to identify the best alternative to create value for Applebees shareholders, said Dave Goebel, President and Chief Executive Officer of Applebees International. We believe the combined Company, and the strength of the two brands, will drive significant value creation. Our management team looks forward to working with the IHOP management team during the transition period.
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The transaction is expected to result in earnings accretion, exclusive of one-time transaction-related charges, in 2008 and beyond. The acquisition of Applebees is also expected to substantially enhance IHOPs 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 Applebees 508 company-owned and operated restaurants;
· Reducing related General & Administrative expenses as those restaurants are franchised;
· Selling Applebees-owned real estate and executing related leasebacks;
· Reducing capital expenditures as Applebees is transitioned quickly out of its more capital intensive company operations model; and
· Re-energizing Applebees brand, driving same-store sales performance and improving the systems operational performance and profitability.