DealLawyers.com Blog

Here is an article from the WSJ: In an unusual legal move, an Applebee’s International Inc. director plans to ask a Delaware court to award him more money for his Applebee’s shares on the grounds that IHOP Corp. is paying too little to buy the restaurant chain.

Burton “Skip” Sack, Applebee’s largest individual shareholder, with about 3.2% of the stock, said he has started the process of an appraisal proceeding that he plans to file against Applebee’s once it becomes a subsidiary of IHOP. Appraisal rights allow a shareholder to submit the value of company shares to a court’s analysis, with the hopes that the court will determine they are worth more than the agreed purchase price.

Mr. Sack’s lawsuit is the latest evidence of the sharp divisions that have permeated the Applebee’s deal through months of deliberations. IHOP agreed to buy Applebee’s in July for $2.1 billion, or $25.50 a share, just as the credit markets were softening. Mr. Sack and four other Applebee’s directors, including the company’s chief executive, Dave Goebel, voted against selling to IHOP, favoring instead a stand-alone plan to revive the nation’s largest sit-down restaurant chain. They were outvoted by the nine other Applebee’s board members.

“I felt very strongly that it was not a good deal for shareholders,” said Mr. Sack, adding that he has “agonized” over whether to proceed with the lawsuit. “I think the shares are worth more.”

Although investors sometimes use an appraisal proceeding to extract more money after a sale, it’s highly unusual for a director from a target company to do it. Mr. Sack and his attorney, Travis Laster, a partner at Abrams & Laster LLP in Wilmington, Del., declined to say exactly how much they believe the shares are worth, or the specific grounds on which they plan to argue their case.

Applebee’s spokesman Laurie Ellison declined to comment specifically on Mr. Sack’s planned lawsuit but pointed out that the majority of directors agreed that the offer price was fair and in the best interest of Applebee’s shareholders, in addition to support from two proxy firms. An IHOP spokeswoman declined to comment.

Applebee’s shareholders are scheduled to vote on the deal with IHOP by Oct. 30. In the past several days, proxy advisory firms have come out split over whether the sale is good for Applebee’s shareholders.

Institutional Shareholder Services and Glass, Lewis & Co. favor the deal. Proxy Governance and Egan-Jones Proxy Services are against it. Some Applebee’s investors have been disappointed by the price, saying the all-cash transaction doesn’t give Applebee’s investors any upside if IHOP makes good on its promise to revive Applebee’s.

IHOP Chief Executive Julia Stewart told investors Tuesday that the weak credit markets could make it more difficult to finance the Applebee’s purchase, but that IHOP believes it can still successfully fund the deal. Ms. Stewart said the company is already moving forward with integrating the chains.

Mr. Sack’s lawsuit entails some risk. If the court decides the shares are actually worth less than what IHOP pays for Applebee’s, Mr. Sack could end up pocketing less for his shares, Mr. Laster said. If Mr. Sack is successful, the so-called surviving company, which will be the IHOP subsidiary Applebee’s, would have to pay him.

Mr. Sack owns about 2.3 million shares of Applebee’s stock, making him the sixth-biggest overall holder of the shares behind several investment firms. A former Applebee’s franchisee and executive, the 69-year-old has been on Applebee’s board since 1994.

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