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UPDATE: As others gauge Applebee's value, the co. pegs the brand's worth at $4.7B

OVERLAND PARK Kan. As investors, analysts and industry watchers continue to speculate on the future of Applebee's International Inc., the company filed additional proxy materials with regulators Wednesday that pegged the brand's value at $4.7 billion.

Aday after the company announced it had formed a committee of board members to evaluate strategic alternatives to increase shareholder value, Applebee's elaborated on possible options, stating that future strategies "could range from additional leverage (adding more debt), to a more aggressive stock buy-back plan, to taking the company private in a leveraged buy-out, to the sale of Applebee's to another company."

The committee hired Citigroup Global Markets Inc. and the company has hired Banc of America Securities for financial advice.

Analysts have said an outright sale to another restaurant company is unlikely given the size of Applebee's 1,942-unit system, the limited growth prospects of a widespread brand, and what would likely be a heavy price tag. Many have speculated that a large share buyback, perhaps in the form of a modified Dutch auction tender like the ones recently completed by Brinker International Inc. and others, would be the end result.

Still, private-equity firms have continued their hyperactivity in the restaurant industry and Applebee's could go the way of OSI Restaurant Partners Inc., which is expected to go private as early as next month in a management led and private-equity sponsored buyout valued at about $3.63 billion. Contract feeder Aramark Corp. was just acquired for $8.3 billion by a management-led group that included five private-equity investors.

Applebee's stated in today's securities filing that the company is "committed to a thoughtful and thorough examination of our options to ensure we come to a good decision." It did not offer a time table for future announcements related to the company's review.

In discussing the possible option of selling corporate markets to franchisees, Applebee’s said it strongly believed it should remain both an operator and a franchisor. 

“It gives us the ability to test new food and new ideas in our markets; it gives us credibility with our franchisees, and it allows us to lead by example,” the company stated. “Company-owned restaurants also provide us with a revenue stream to support our $4.7 billion brand.”

Applebee's also said the board's review does not change the chain's plans for the current fiscal year.

"We are full-steam ahead on our 2007 plans," Applebee's said. "It is critical that we stay focused and deliver on our commitments to improve traffic and sales in 2007."

Applebee's has been struggling to recover the stride that made it one of the industry's out-performers through much of the 1990's and first half of this decade. More recently, the brand had been unable to pull out of a sales slowdown that began three years ago. Systemwide domestic same-store sales dropped 0.6 percent for the full fiscal 2006, for example. The company has been trying to gain traction of late by enlisting celebrity chef Tyler Florence to develop new entrees and offering a value-oriented, three-item combo deal for $9.99, for example. The company also hired a new chief marketing officer that will be tasked with developing new advertising campaigns and menu direction.

The company's weak performance made it a target of hedge fund Breeden Partners, which disclosed a more than 5-percent stake in Applebee's in October, and called for the restaurant operator to improve shareholder returns through re-franchising, cuts in spending and the sale or sale-leaseback of real estate assets.

After Applebee's conceded to begin exploring alternatives, Breeden said it was "pleased that the board has recognized the need to do something in the face of a failed strategy and prolonged deterioration in operating fundamentals."

The Greenwich, Conn.-based fund, founded by former Securities & Exchange Commission chairman Richard C. Breeden, also said it hoped Applebee's would not make any decisions until a new board "with real independence and fresh thinking" is in place.

Breeden is set to nominate four executives to Applebee's 12-person board of directors at the company's annual shareholder meeting slated for May.

"We strongly believe that any final decisions on proposed transactions resulting from this review should only be taken by the new board, not the current group," the fund said in a statement.

For its part, Applebee's said its decision to begin a strategic review was not driven by pressure from Breeden, but said it was committed to listening to all shareholders. It cited the various restructurings of companies including Brinker, OSI, Ruby Tuesday Inc., Rare Hospitality International Inc. and CBRL Group Inc., in addition to others.

"Numerous companies have announced various strategic alternatives, so this action is not unique to Applebee's, nor is it driven by any one shareholder."

Applebee's also reported fourth-quarter and fiscal 2006 results Wednesday. The company posted reduced fourth-quarter net income of $18.5 million, or 25 cents per share, compared with $20.5 million, or 27 cents per share, a year ago. Excluding impairment and restaurant closure costs, as well as expenses for stock-based compensation, Applebee's would have earned 32 cents a share in its latest quarter, the company reported. Revenues rose 13.9 percent to $342 million. Systemwide domestic same-store sales dipped 1.1 percent.

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