Investors looking to flip IHOP pancake house toasted by proxy firms

Institutional Shareholder Services, Glass Lewis both nix proposal to spin-off IHOP

BOSTON- Two influential proxy advisory firms said Dine Brands Global Inc shareholders should reject a proposal to spin off its IHOP pancake house chain in a rebuke to activist investment firm JCP Investment Partnership which proposed the plan.

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Institutional Shareholder Services and Glass Lewis both recommended votes against JCP's shareholder proposal that Glendale, California-based Dine hire an investment bank in order to turn IHOP into a separately traded public company, the two reports, which were seen by Reuters on Wednesday, say.

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TickerSecurityLastChangeChange %
DINDINE BRANDS GLOBAL48.91-3.77-7.16%

The firms' recommendations carry considerable weight with investors who will cast votes at Dine's annual meeting on May 12.

ISS and Glass Lewis both said JCP's arguments that Dine would be better off letting the pancake house chain become a standalone company were not convincing. Dine also owns Applebee's Grill & Bar in addition to IHOP.

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JCP "has not provided a thorough quantitative assessment to support its arguments," the Glass Lewis report said, adding "this proposal is overly prescriptive and would limit the board's ability to fully consider other potential strategic alternatives."

JCP's shareholder proposal became public in a regulatory filing earlier this month and has not gained much traction at a time most U.S. restaurants have largely been ordered to shut in order to help slow the spread of the coronavirus.

The investment firm did not respond to a request for comment and a spokesman for Dine declined to comment.

ISS said bluntly that hiring an investment bank now to try and spin-off a restaurant chain at a time few people are dining out would be a waste of time and money. "Hiring an investment banker to effect a spinoff of IHOP may not be considered a prudent use of board and management resources at this time," the report said.

JCP, a Houston-based firm run by James Pappas, argued that "the valuation increase and potential earnings increase for IHOP would vastly outweigh the existing synergies associated with keeping IHOP and Applebee’s together."

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Much has changed for investors after a historic stock-market selloff and as 26 million U.S. jobs were lost in the last five weeks. Many activist investors have quickly and often quietly dropped demands for change to let management navigate the crisis.

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

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