Dine Brands (DIN 1.95%) investor JCP Investment Partnership wants the restaurant operator to spin off its IHOP chain because the market can't appropriately value it. The franchiser operates the pancake chain -- a fast-growth business -- as well as the Applebee's Neighborhood Grill & Bar chain, which is a slower growth business.

Dine's board of directors is urging shareholders to vote against the measure at the company's annual meeting scheduled for May 12.

Stack of pancakes

Image source: IHOP.

Taking a bite out of value

IHOP has been on a tear, racking up eight consecutive quarters of same-store sales growth while Applebee's stumbles. The latter chain's comps fell 2.5% in the fourth quarter.

JCP says Dine Brands management admitted last month the restaurant operator is valued differently than its peers, and the investor believes it is because IHOP is a growth business while Applebee's is not.

Spinning off IHOP would allow the market to appropriately value each restaurant as a pure play in their respective niches and shareholders would profit much the way investors did when Brinker International and Darden Restaurants shed their On the Border and Red Lobster chains, respectively.

JCP states, "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."

Dine Brands' board opposes a spinoff because it says it is too limiting, as it precludes it from considering other avenues for increasing shareholder value, optimizing its portfolio, or allocating capital. It also says a spinoff would hurt its ability to buy back stock and pay dividends.

Dine Brands' dividend of $3.04 per share currently yields well over 14% annually.