Applebees Board Considers Selling Chain

Applebee's announced that "independent directors had formed a committee to explore alternatives for enhancing shareholder value". That's corporate speak for "we're really thinking about selling this thing, big time." The root of the problem that has the board thinking of selling is that management has been unable to turn around the chain's poor restaurant performance.

Even with Applebee's strong cash flow and low debt, The Wall Street Journal ($$) observes:

"Still, it may be difficult for the chain to find a buyer. The price tags of some recent restaurant buyouts suggest Applebee's shares may be too expensive to draw serious interest. And Mr. Breeden [a major investor who owns 5.25% of Applebee's stock] says the chain needs fixing before it can fetch a sum that would adequately reward shareholders."

Less draconian measures in lifting performance is also available. Mr. Richard Breeden in the past had urged the company to sell all or part of its company-owned restaurants to franchisees. Franchisees tend to lift restaurant performance over their corporate peers. However, this does not seem a likely move at this point since Applebee's has more fundamental issues at hand.

"Selling outlets to franchisees may satisfy 'financial engineers,' but it won't necessarily turn Applebee's into a better-run company or brand, JPMorgan analyst John Ivankoe said in a research note." [WSJ -$$]

Casual restaurants have been hard hit by high fuel prices that significantly reduced the number of customers, particularly last summer's. Applebee's plans to introduce value meals to lure back eaters and to build fewer locations this year.

[Read more at Restaurant News Resource]