A TASTE OF CHANGE IHOP REVEALS PLAN TO BUY APPLEBEE'S.

Byline: JULIA M. SCOTT

Staff Writer

GLENDALE -- IHOP said Monday that it would buy Applebee's for $2.1 billion in cash as part of a plan to revive the bar-and-grill chain.

The $25.50-per-share deal offers shareholders a small premium over the recent trading price of Applebee's stock. The stock rose to $24.91 on news of the deal.

IHOP stock rose almost 9 percent, to $61.24, after news of the acquisition broke.

IHOP chief Julia Stewart plans to sell nearly all of Applebee's company- owned restaurants to individual franchise owners to boost cash flow and stock prices, a strategy she used to help breathe new life into the pancake chain.

Of the 1,319 IHOP eateries across the globe, 99 percent are franchises. Nearly 75 percent of Applebee's 1,943 locations are franchises.

"We've been down this road before and successfully led a total business transformation," Stewart said during a conference call. "We plan to do it again with Applebee's."

Under IHOP's direction, Applebee's will stop opening new company restaurants, sell all but a few dozen of the existing company restaurants, and open 30 to 45 franchises per year. With fewer company-owned Applebee's, IHOP will be able to cut support staffers.

The deal will result in $50 million in annual savings by 2011, officials said.

The new company will have a total of 3,250 restaurants and $6.8 billion in total sales.

Stewart was president of Kansas-based Applebee's domestic division between 1998 and 2001. The number of customers at the chain dropped about 3 percent in recent months, but higher prices helped offset sales, which declined just 0.2 percent.

Analysts had mixed reactions to the news.

Michael Gallo at C.L. King & Associates was confident Stewart would help Applebee's pull through, just as she did for IHOP.

"We certainly expect that they will be able to turn it around," Gallo said.

But Michael Smith at Oppenheimer & Co. said Applebee's issues were not the same as those IHOP experienced.

Applebee's struggles "have more to do with macroeconomics and the fact that their customers ... are more severely impacted by high energy prices," Smith said. "The best way for them to turn around Applebee's would be to cut gas prices."

Bryan Elliot, an analyst at Raymond James & Associates, released a statement about the purchase that said the move could boost IHOP stock to between $100 and $150 in 2011 to 2012, assuming Stewart pulls off her plan successfully.

But if conditions turn sour, IHOP stock could carry a "higher risk profile" than before, the statement warned.

julia.scott(at)dailynews.com

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A closer look at IHOP Corp.

2006 Sales (in millions): $349.6

1-Year Sales Growth: 0.4%

2006 Net Income (in millions): $44.5

1-Year Net Income Growth: 1.4%

Stores: 1,319

Operates in 49 states, Canada, Mexico and the U.S. Virgin Islands

Key Executives:

Julia A. Stewart, Chairman, President and CEO

Dennis R. Farrow, Chief Operating Officer

Thomas G. (Tom) Conforti, Chief Financial Officer

CAPTION(S):

3 photos, box

Photo:

(1 -- color) Waitress Letty Hernandez serves breakfast at an IHOP restaurant in Burbank. IHOP on Monday made a $1.9 billion bid for the bar-and-grill chain Applebee's.

Nick Ut/Associated Press

(2 -- color) no caption (IHOP)

(3 -- color) no caption (Applebee's)

Box:

A closer look at IHOP Corp. (see text)