IHOP Buying Applebee's

IHOP (IHP Quote) agreed to buy Applebee's (APPB Quote) for $25.50 a share, or $2.2 billion.

The move gives shareholders of Overland Park, Kan.-based Applebee's a 4.6% premium to Friday's closing prices. The company has been under pressure from activist investors led by former Securities and Exchange Commission chief Richard Breeden, who forced the casual dining chain to put itself on the block earlier this year amid criticism of its performance and its executive pay practices.

"This transaction represents the culmination of a comprehensive strategic alternatives process led by the Strategy Committee of our Board of Directors to identify the best alternative to create value for Applebee's shareholders," said Applebee's chief Dave Goebel. "We believe the combined Company, and the strength of the two brands, will drive significant value creation. Our management team looks forward to working with the IHOP management team during the transition period."

IHOP intends to finance the all-cash transaction through a whole business securitization backed by Applebee's assets and additional borrowings under IHOP's securitization structure. IHOP has secured a bridge facility commitment to fund the transaction pending the completion of both securitizations. In addition, upon the closing of the acquisition, IHOP will issue new preferred stock via already committed private placements.

The all-cash transaction, which is expected to close in the fourth quarter of 2007, is subject to the approval of Applebee's shareholders, customary closing conditions and regulatory approvals.

Monday morning, Applebee's also reaffirmed second-quarter earnings views, saying it expects to make around 30 cents a share on a roughly 1% drop in same-store sales.