Risk & Compliance

Applebee’s Must Serve Up More Sale Info

The company settles with investors who sued, claiming they were kept in the dark about key facts regarding a proposed purchase of the company.
Stephen TaubOctober 15, 2007

Applebee’s International has agreed to settle a class-action lawsuit filed by a union that asserted the casual dining chain is better off independent than going through with its deal to be bought by IHOP.

Under the agreement with the New Jersey Building Laborers Pension and Annuity Funds, which brought the suit, the restaurant company does not have to shell out any money. Rather, it must provide its shareholders with additional information about the deal, according to the Associated Press.

Back in July, IHOP agreed to buy Applebee’s for $25.50 per share in cash, or $2.1 billion. IHOP said at the time that once the deal closed, it would franchise the majority of Applebee’s 508 company-owned and operated restaurants and sell Applebee’s-owned real estate.

In its lawsuit, the union argued that Applebee’s shareholders would be hurt if the deal went through because they would enjoy better financial benefits if Applebee’s remained independent and sold off the company-owned locations to franchisees itself, the AP report said.

The union charged that Applebee’s did not provide information about IHOP’s plan to convert to a franchise-based system; did not discuss how its financial adviser determined the company’s value; and failed to provide details on the deal’s financing, according to AP. The settlement reportedly requires that shareholders—who are scheduled to vote on the deal on October 30—be provided supplemental disclosures.

Interestingly, five members of the Applebee’s board of directors said they opposed the deal, according to the company’s September proxy filing. They include David Goebel, chief executive officer; Steve Lumpkin, chief financial and strategy officer; Lloyd Hill, chairman and former CEO; Erline Belton; and Burton Sack.

In the proxy, Applebee’s said the directors that preferred remaining independent asserted that “the standalone plan would generate greater value for stockholders.”

If the deal goes through, Goebel would receive nearly $5 million in connection with the conversion of restricted stock and the cancellation of options and stock appreciation rights. Lumpkin would receive nearly $3.6 million.

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