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Applebee’s shareholders approve buyout by IHOP

OVERLAND PARK Kan. Stockholders of Applebee’s International Inc. have voted by a wide margin to proceed with the casual-dining company’s $2.3 billion buyout by IHOP Corp., the casual-dining company said after a special shareholder meeting here this morning.

Shareholders controlling more than 70 percent of shares outstanding voted to accept the pancake specialist’s offer of $25.50 per share and the assumption of $155 million in debt, Applebee’s said.

The outcome “was not the future I envisioned for Applebee’s,” Lloyd Hill, the company’s chairman and former chief executive, said in closing the meeting.

IHOP, the family chain based in Glendale, Calif., said it plans to finance the deal through a whole-company securitization of Applebee’s, which IHOP plans to operate as a subsidiary. The merger is expected to be completed by Nov. 29.

In the weeks leading up to Tuesday’s special meeting, Hill and four others on Applebee’s 14-person board had indicated that they would vote against the deal because they regard IHOP’s offer as too low. The five, including three insiders, collectively control 5.1 percent of shares outstanding.

Ironically, the only Applebee’s directors present at the special meeting were the dissidents.

The vote was an anti-climactic end to an acquisition bid that included board disagreements, lawsuits both settled and pending, and public displays of shareholder discontent. Shareholder advisory firms were split in their assessment of the deal. As recently as last week, some financial analysts were advising Applebee’s shareholders to sell their shares in case the deal would not be completed.

Hill said the result of the vote was “market-driven,” but that he “respects and accepts” the decision of the majority of the board and the majority of the company’s shareholders.

Hill, along with current chief executive David Goebel, chief financial officer Steven Lumpkin and board directors Burton “Skip” Sack and Erline Belton, voted against the deal. They had wanted Applebee’s to follow a management-led standalone plan that included a recapitalization and the refranchising of corporate locations.

Activist investor Richard Breeden, who engaged in a prolonged battle with Applebee’s over its share price, was one of the board members who voted for the IHOP deal.

Hill said: “I remain confident in the incredible appeal and the strength of this great American brand, its associates and franchisees. I encourage all associates that are going forward with this new team and new organization to commit themselves to [Applebee’s mission].”

Director Sack, who is Applebee’s largest individual shareholder with about 3.2 percent of shares, confirmed that he was planning to ask a Delaware court to seek more money per share because he feels the deal undervalued Applebee’s worth. His appraisal proceedings, which submit the value of a company’s shares to a court’s analysis, will begin after the deal closes. He would not comment further on the pending suit, and said he was at the shareholder meeting “as a director and in support of the employees É my other actions are personal.”

Goebel said, “The shareholders have spoken and we need to respect that.” While his future at Applebee’s is uncertain, he said he was proud of the way Applebee’s management and associates had worked toward integration with IHOP.

At IHOP, feelings were more upbeat.

“This is an exciting day for our company, and we are pleased that Applebee’s stockholders recognize the value of this transaction,” Julia Stewart, IHOP chairman and chief executive, said in a statement. “After a successful closing, we look forward to applying the focus and discipline that we have employed at IHOP to successfully restructure and re-energize the Applebee’s brand. By working in collaboration with the Applebee’s associates and franchisees, we believe that the brand can again achieve the success it enjoyed in the past.”

IHOP has pledged to refranchise a majority of Applebee’s more than 500 corporate locations. There are more than 1,400 franchised restaurants in the Applebee’s system. Most of IHOP’s 1,328 namesake units are franchised.

An Applebee’s shareholder and Overland Park native, Robert Burns, said he was unhappy with the outcome and wasn’t sold on the idea of a “pancake organization running a multi-menu chain.”

“We hope [Stewart] will take care of Applebee’s,” he said.

In reporting its third-quarter results for the quarter ended Sept. 30, Applebee’s disclosed net income of $15.8 million, or 21 cents per diluted share, compared with $15.5 million for the year-ago quarter. Total revenues were $323.7 million, an increase over the $314.2 in revenues for the 2006 third quarter.

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