updated 10/30/2007 3:14:14 PM ET 2007-10-30T19:14:14

Shareholders of the bar-and-grill chain Applebee’s International Inc. on Tuesday approved a $1.9 billion buyout offer from pancake house operator IHOP Corp.

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More than 70 percent of the company’s shares voted to approve the agreement, which critics said shortchanged shareholders.

Under terms of the deal, shareholders of Overland Park-based Applebee’s will be paid $25.50 per share, a 4.6 percent premium over its closing price on the day before the offer was announced.

Glendale, Calif.-based IHOP is also assuming $155 million in Applebee’s debt as part of the deal.

The sale is expected to close by Nov. 29. The combined company would have $6.8 billion in annual sales and more than 3,200 restaurants.

Officials at both companies have characterized the deal as a way to help rejuvenate Applebee’s, one of the nation’s largest restaurant chains. Its profits and sales have fallen in the past year as rising fuel and housing costs and changing consumer behavior have reduced traffic in its dining rooms.

The deal is viewed as a coup for IHOP, which is smaller than Applebee’s but has had success in building its own brand and sales in the face of economic headwinds.

Julia Stewart, IHOP’s chief executive officer and a former Applebee’s executive, has said she plans to franchise most of Applebee’s 510 company-owned stores and sell real estate tied to around 200 of those stores as a way to pay for the deal.

“After a successful closing, we look forward to applying the focus and discipline that we have employed at IHOP to successfully restructure and re-energize the Applebee’s brand,” Stewart said in a news release. “By working in collaboration with the Applebee’s associates and franchisees, we believe that the brand can again achieve the success it enjoyed in the past.”

Applebee’s Chairman Lloyd Hill, who joined the company’s board in 1989 and became chief operating officer in 1994, stepped down as CEO last year. He had voted against the deal as a member of board of directors and indicated he would vote against it as a shareholder.

“This is not the future I had envisioned for Applebee’s,” a somber Hill said in announcing the results of Tuesday’s vote, while adding that he accepted the direction the majority of the company’s directors and shareholders had chosen.

Hill thanked Applebee’s employees and encouraged them to work with IHOP management in improving the company.

“I remain confident in the incredible appeal and strength of this great American brand,” he said.

Started in Atlanta in 1980 and taken public in 1989, Applebee’s grew into the nation’s largest casual dining chain with 1,955 restaurants in 49 states, one U.S. territory and 17 countries.

While a chain, the individual restaurants, scattered in cities big and small, tied themselves to their communities with homey interiors decorated with mementos of local heroes and sports teams.

But the economy in recent years put pressure on diners’ wallets and the improving quality of fast food companies and so-called fast casual competitors, such as Chipotle and Panera’s, as well as Applebee’s own inability to distance itself from rivals Chili’s Grill & Bar, Friday’s and Ruby Tuesday’s began cutting into sales.

On Monday, Applebee’s said its year-to-date sales through September in restaurants open for at least a year were down 1.8 percent.

In February, following several months of behind-the-scenes maneuvering and a brief proxy fight with activist shareholder Richard Breeden, the company announced it was considering its strategic options, including a possible sale.

IHOP, which rebuilt its image soon after Stewart took over in 2002, was the highest bidder, announcing the acquisition in July.

The deal was criticized by several large shareholders who felt the $25.50 share price was too low, especially because Applebee’s shareholders would receive no benefit if Stewart’s plans to rejuvenate the company succeeded.

Shareholder advisory firms and stock analysts were divided on the issue with some recommending approval while others said Applebee’s should stay independent and franchise the company-owned stores itself.

The debate split the company’s board of directors, which voted 9-5 to approve the sale this summer. Among those voting against it were Hill and Chief Executive Officer Dave Goebel, who had pushed a similar refranchising strategy but were outvoted by directors worried the company’s shaky finances and the deteriorating credit markets wouldn’t handle the strain.

Among those voting against the deal was director Burton Sack, a former Applebee’s executive and the company’s largest individual shareholder.

Sack has said he plans to file suit in Delaware Chancery Court once the sale is completed, challenging the $25.50 share price.

Shares of Applebee’s rose 8 cents to $25.28 in afternoon trading Tuesday while shares of IHOP rose 56 cents to $63.24.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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