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JCP Partners asks Dine Brands to spin off IHOP in shareholder proposal

By Svea Herbst-Bayliss

By Svea Herbst-Bayliss

BOSTON, April 2 (Reuters) - Activist investment firm JCP Investment Partnership is urging Dine Brands Global Inc to spin off its IHOP pancake house restaurant chain at a time restaurants have largely been ordered to shut in order to help slow the spread of the coronavirus.

The Houston-based investment firm told the Glendale, California-based company that its two chains - IHOP and Applebee's Grill & Bar - do not fit together and IHOP should be turned into a standalone company.

JCP made a shareholder proposal which was made public in a regulatory filing by Dine late on Wednesday. The company's shareholder meeting is scheduled for May 12.

"We believe that a spin-off of IHOP into a separately traded public company could create significant stockholder value and urge stockholders to vote FOR this proposal," JCP's shareholder proposal said. In the same filing, the company's board urged shareholders to vote against the proposal.

JCP argues that Applebee's has been a drag on growth and that other restaurant chains have successfully spun off segments, including Darden Restaurants Inc which sold Red Lobster to a private equity company in 2014.

"We believe that the valuation increase and potential earnings increase for IHOP would vastly outweigh the existing synergies associated with keeping IHOP and Applebee’s together," JCP said in the filing.

JCP is run by James Pappas whose family has deep roots in the restaurant business as his father, Christopher Pappas, is president and chief executive officer of restaurant chain Luby's Inc, which operates the Fuddruckers chain among others.

JCP did not immediately respond to a request for comment and a spokesman for Dine Brands declined to comment beyond the filing.

Any spinoff would come with considerable costs and also accelerate the repayment of debt. It would come with a make-whole premium of more than $90 million, which is roughly one-third of the company's current $369 million market capitalization. The company has $1.3 billion in senior secured notes.

The shareholder proposal was publicized just hours before the U.S. government announced that jobless claims surged to 6.6 million people last week. Restaurant workers have been hit hard as restaurants across the country have been forced to close dining rooms in observance of "social distancing" used to slow the spread of the coronavirus.

(Reporting by Svea Herbst-Bayliss in Boston Editing by Matthew Lewis)