Five Applebee’s directors plan to oppose buyout by IHOP

OVERLAND PARK Kan. Five of the 14 directors at Applebee’s International Inc. plan to cast votes representing a 5 percent collective stake in the company against the pending $2.1 billion buyout proposal from pancake specialist IHOP Corp. because of concerns about the valuation, according to proxy materials filed late Thursday with securities regulators.

The filing also revealed that the dissenting group, including chief executive David Goebel, chairman Lloyd Hill and former chief executive Burton “Skip” Sack, had also voted against the pending deal prior to its announcement in July. Directors Steve Lumpkin, who is also Applebee’s chief financial officer, and Erline Belton also opposed the deal.

The five dissident directors stated they would vote their aggregate 3.85 million Applebee’s shares, or about 5 percent of its outstanding stock, against the merger, the preliminary proxy materials revealed.

Applebee’s, based here, and Glendale, Calif.-based IHOP Corp. had said the deal was expected to close in the fourth quarter, pending shareholder approval in voting that has not yet been scheduled.

Wall Street analysts and institutional investors had yet to offer opinions about whether the company’s revelation of the five directors’ opposition to the deal could inspire other large groups of shareholders to grow skittish, or whether financiers who would be expected to fund the buyout might be influenced negatively by the board minority’s dissent.

The proxy materials also revealed that that Applebee’s had received “indications of interest” from buyers that offered per-share buyout prices ranging from $26.50 to $30.50. IHOP initially indicated it could pay between $28 and $29 per share.

After further due diligence was completed, and Applebee’s continued to report declining same-store sales, some bidders dropped out of the process, leaving IHOP, a consortium of unidentified financial sponsors and a large Applebee’s franchisee that also was not identified. IHOP dropped its bid to $27 per share in June.

As part of its consideration of a sale of the company, Applebee’s management also presented a “standalone” contingency plan in case a sellout ultimately was rejected. That plan included refranchising company restaurants, reducing corporate overhead and increasing the corporate debt level to fund a one-time dividend of between $13 and $15 per share.

As negotiations continued in June and July — and as the credit markets deteriorated, making financing for the deal more difficult and expensive — IHOP lowered its bid to $25.50 per share, proxy materials show.

According to the proxy information filed Sept. 6, both Goebel and Lumpkin believed that IHOP’s final purchase offer “was not fair to stockholders, in comparison to the higher value they believed would be produced by the standalone plan.”

Still, the majority of Applebee’s board voted for the IHOP offer as it presented “a more certain value [and] a better alternative for our stockholders,” the company also indicated.