KANSAS CITY, Mo.—Pancake house operator IHOP Corp. said Thursday it had completed its $1.9 billion purchase of casual dining chain Applebee's International Inc.
Under terms of the deal, shareholders of Overland Park, Kan.-based Applebee's will be paid $25.50 per share, a 4.6 percent premium over its closing price on the day before the offer was announced in July and 2 cents above where the shares ended trading Thursday.
Glendale, Calif.-based IHOP is also assuming $155 million in Applebee's debt as part of the deal.
The combined company has $6.8 billion in annual sales and more than 3,250 restaurants.
To pay for the acquisition, IHOP officials said they plan to franchise 475 of Applebee's 510 company-owned stores by the end of 2010, expecting to sell select markets by early next year.
IHOP also plans to sell real estate tied to around 200 of those stores.
The company added that because of costs tied to financing the acquisition it now doesn't believe the Applebee's purchase will add to earnings this year.
IHOP shares, which have traded in a 52-week range of $48.25 to $71.70, gained $2.51 to $52.29 in trading Thursday.
Officials at both companies have characterized the deal as a way to help rejuvenate Applebee's, one of the nation's largest restaurant chains. Its profits and sales have fallen in the past year as rising fuel and housing costs and changing consumer behavior have reduced traffic in its dining rooms.
Julia Stewart, IHOP's chief executive officer and a former Applebee's executive, said in a news release that, in additon to the refranchising and real estate deals, she and her management team will also focus on finding the chain's place in the market, which would then drive changes in menu items, restaurant decor and marketing to return to positive same-store sales.
"Together, these efforts will serve to establish a strong point of differentiation for the Applebee's brand and enhance its competitive position over time," Stewart said.
The company said Applebee's headquarters will remain in Kansas for the time being although eight of Applebee's top executives were expected to leave the company following the closing of the sale.
The deal is viewed as a coup for IHOP, which is smaller than Applebee's but has had success in building its own brand and sales in the face of economic headwinds.
Started in Atlanta in 1980 and taken public in 1989, Applebee's grew into the nation's largest casual dining chain with 1,955 restaurants in 49 states, one U.S. territory and 17 countries.
While a chain, the individual restaurants, scattered in cities big and small, tied themselves to their communities with homey interiors decorated with mementos of local heroes and sports teams.
But the economy in recent years put pressure on diners' wallets and the improving quality of fast food companies and so-called fast casual competitors, such as Chipotle and Panera's, as well as Applebee's own inability to distance itself from rivals Chili's Grill & Bar, Friday's and Ruby Tuesday's began cutting into sales.
The company on Wednesday reported that sales in U.S. restaurants open for at least a year decreased 1.6 percent in November from the same period a year ago and was down 1.5 percent so far this quarter.
IHOP, started almost 50 years ago, had also fallen on hard times in the late 1990s before a series of changes led to improvements in its menu and look, as well as a move to almost completely franchised locations.
The company said its same-store sales increased 2 percent during its most recent quarter.
