Of course, the term "strategic alternatives" is code for selling the company, or maybe restructuring it. Applebee's said it has hired Citigroup Global Markets and Banc of America Securities as financial advisors. It also withdrew its guidance for 2007, since this development could lead to some changes there.
It's not too shocking that Applebee's would eye this strategy. Hedge fund and Applebee's shareholder Breeden Capital Management started agitating for change at Applebee's in December, citing the restaurant chain's "severe performance problems," among other issues, as it nominated its own candidates for the company's board. And it's interesting to note that an analyst at Banc of America put a rare "sell" rating on Applebee's in early January. (That analyst didn't exactly single Applebee's out, with less-than-optimistic ratings on Ruby Tuesday
Longtime Fool Rick Munarriz recently took a look at Applebee's January comps, and he had a less harsh assessment. He pointed out that many strong restaurant chains often take a breather after strong growth, citing Cheesecake Factory
On the other hand, Applebee's has been floundering since 2005 -- that was when the company's CEO said the best thing he could say about the year was that it was over. 2006 didn't provide much sign of a turnaround, and that's why shareholders started getting antsy.
Applebee's shares soared in pre-market trading on the news; last I checked, they had increased nearly 13%. That seems to me like a little too much optimism, and I think such a spike could be risky business for investors buying right now. After all, Applebee's may have its work cut out for it in terms of drumming up growth, and there's no guarantee that anyone will step forward to buy the chain or that any new initiatives will work as planned. Although the potential for change is promising, this Fool doesn't see any reason to pull up a chair at Applebee's table right now.
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