IHOP will buy Applebee’s

GLENDALE, Calif. – IHOP Corp., best known for its blue-roofed pancake restaurants, said Monday it has agreed to buy the bar-and-grill chain Applebee’s International Inc. for about $1.9 billion in cash.

The move comes as Wall Street analysts are expecting a difficult second-quarter earnings season in the restaurant sector as soaring commodity costs are hurting restaurant profits and consumers facing high gas prices are thinking twice about going out for a meal.

IHOP Chief Executive Julia Stewart, a former Applebee’s executive, said once the deal closes, IHOP would revive the Applebee’s brand and plans to turn it into primarily a franchisor by selling most of the 500 company-owned stores at a rate of 40 per quarter, a process that could take until 2010 to complete.

“It’s a great brand – it just needs to be revitalized,” Stewart said on a conference call Monday. “We will fundamentally change the company’s business model, moving it nearly completely out of the role of owner-operator.”

The changes could save $50 million a year by 2011. IHOP plans to open at least 30 to 45 new franchised Applebee’s restaurants a year, IHOP Chief Financial Officer Thomas Conforti said. IHOP also plans aggressive share repurchases to increase shareholder value, executives said.

Conforti said the company does not anticipate any antitrust issues since they are not direct competitors. The deal requires approval by Applebee’s shareholders but not investors in IHOP, since it is an all-cash deal.

Under the deal, IHOP will pay $25.50 a share for Applebee’s, which has been under pressure from shareholders for a slumping performance.