Dine Brands adopts poison pill amid takeover interest
Applebee's and IHOP's owner moves to block Cobblers Cove and Arkhouse after reports the pair offered $39 a share for the casual-dining group.
Dine Brands, the owner of Applebee's, IHOP and Fuzzy's Taco Shop, adopted a poison pill on October 28 after reports that two investment firms were building a position ahead of a takeover approach.
Bloomberg reported that Cobblers Cove and Arkhouse Management had offered $39 a share, a figure that could rise after due diligence, and that the pair had exposure to nearly 20% of Dine Brands' stock through options and other instruments. Shares rose more than 8% the day the report surfaced.
A one-year shareholder rights plan
A year-long shield buys the board time. It does not settle what Applebee's and IHOP are worth apart.
The board's plan runs for a year, lapsing on October 27, 2027 unless ended earlier. If a passive investor crosses 20% of shares, or an activist crosses 10%, other shareholders can buy additional stock at a 50% discount, diluting the acquirer's stake. The same discount right would apply if the company faced an unsolicited takeover bid. Existing holders above those levels at adoption are grandfathered.
Dine Brands called it a standard rights agreement rather than a poison pill, language common to such plans, which are designed to stop a buyer from accumulating shares without paying existing holders a premium. Cobblers Cove and Arkhouse worked together last year on a $1 billion take-private deal for the retailer Family Dollar, and the pair are not the only ones circling a restaurant group this autumn: Wendy's is fighting off its own takeover bid from Nelson Peltz and Tim Hortons founder Jeri Flynn.
Two legacy chains, one growth brand
The defence comes as Dine Brands' three chains are pulling in different directions. Applebee's and IHOP same-store sales have been shaky for several quarters, while Fuzzy's Taco Shop, the newer and smaller of the three, grew comparable sales in each of the first two periods of the year, including 4.6% in the second quarter. Fuzzy's system sales still fell 5.3% in that period as the chain closed stores, ending the first half with 97 locations, down from 113 a year earlier.
Dine Brands shares are up nearly 8% year to date and more than 35% over the past 12 months, a run that makes the company both a more expensive target and a more obvious one. Activists have pushed before for a breakup, including a 2020 shareholder proposal to spin off IHOP, which the board rejected at the time; rival chain owner Restaurant Brands International, by contrast, just posted a $704m quarterly profit while one of its own brands struggled.
A year-long pill buys the board time, not an answer. Whether Applebee's, IHOP and Fuzzy's are worth more apart than together is the question Cobblers Cove and Arkhouse were already asking.
