IHOP stock jumps on $2.1B Applebee's bid

NEW YORK (CNNMoney.com) -- IHOP Corp. said Monday it plans to buy bar-and-grill chain Applebee's International Inc. for $25.50 per share to expand beyond its iconic pancake restaurants, sending IHOP's shares up nearly 12 percent to an all-time high.

The all-cash deal, which represents a 4.6 percent premium to Applebee's closing price on Friday, is worth about $1.9 billion, based on the company's 75,072,000 shares outstanding as of April 1.

A source close to the deal said it included about $155 million in debt, bringing the total value to $2.1 billion, the figure cited by the companies.

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

IHOP's (up $4.70 to $60.95, Charts) shares were 9 percent higher on the New York Stock Exchange by mid-day Monday.

IHOP, with its market capitalization of $980.6 million, according to Reuters data, is using securitized debt backed mostly by Applebee's assets to fund the purchase of the much larger company, whose market value is $1.82 billion.

The pancake-chain operator, 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 (up $0.48 to $24.86, Charts), whose shares were up nearly 2 percent, also has about 1,400 franchised restaurants.

"We will fundamentally change [Applebee's] business model, moving it nearly completely out of the role of owner/operator to one that is predominantly a franchisor," IHOP Chief Executive Julia Stewart said. "In doing so, we believe over time we will create a business model with a lower-risk profile and superior cash-flow characteristics."

IHOP said it also plans, among other things, to improve marketing to boost cash flow over time, which it will use to pay down debt.

Applebee's, which said earlier this year it was reviewing its options, has been hit hard by weakened consumer spending and stiff competition from rivals, as well as efforts by grocery stores to sell more prepared meals.

IHOP said it will cease all new company store development, and set a target of having less than 5 percent of Applebee's restaurants being company-owned.

Greenhill & Co. LLC advised IHOP, and Banc of America Securities LLC advised Applebee's on the deal, which is expected to close in the fourth quarter of 2007.