Dine Brands Global swallows a poison pill

Dine Brands Global, the owner of Applebee’s, IHOP, and Fuzzy’s Taco Shop, has swallowed a poison pill amid public reports that a pair of investment firms are eyeing a deal for the California-based company.

The casual-dining chain operator’s board approved a stockholder rights plan designed to keep potential buyers from accumulating too many shares without otherwise paying a premium.

Bloomberg this week reported that Cobblers Cove, a newly-established investment firm based in Charleston, South Carolina, and Arkhouse Management, a firm with experience in take-private deals, are looking to buy Dine Brands. The two firms worked with other investment firms last year on a $1 billion deal for the retailer Family Dollar.

The report said that they made an offer to buy the company at $39 per share and could increase their offer after due diligence. The two investment firms have exposure to nearly 20% of the company’s shares through various financial instruments, according to Bloomberg.

News of the report sent Dine Brands’ shares soaring more than 8% on Wednesday.

The stockholder rights agreement gives Dine Brands some leverage in negotiations. If a passive investor acquires more than 20% of the company’s shares, or an activist acquires 10%, existing shareholders will be able to buy additional shares at a 50% discount. If the company is later acquired in an unsolicited takeover, they’ll get the right to buy additional stock at a 50% discount.

The potential offer comes as Dine Brands’ results have been mixed. Same-store sales at its two largest brands, Applebee’s and IHOP, have been shaky in recent quarters. Fuzzy’s Taco Shop same-store sales have been up in each of the first two periods of the year, including 4.6% in the second quarter.

But system sales declined 5.3% in the second period because the chain has been closing locations. The brand finished the first half with 97 shops, down from 113 last year.

The company’s stock is up nearly 8% this year and more than 35% over the past 12 months.