Should Denny’s Adopt Marcato Capital’s Plan For DineEquity?

In December 2012, Richard McGuire’s hedge fund Marcato filed an amended 13D on DineEquity (DIN) proposing that the company renegotiate its credit agreement with its lenders and call its high coupon debt to allow for a 100% payout of free cash flow. (Mr. McGuire is a former partner at activist William Ackman’s Pershing Square Capital Management.) On January 18th, 2013, DIN management filed an 8K, and disclosed that it does plan to:

hold discussions with certain lenders to seek amendments, including a re-pricing, of its senior secured credit facility.

In this article, I will look at DIN’s closest competitor in the family dining space, Denny’s Corporation (DENN), to see what might happen to its share price if it adopted a plan similar to the Marcato proposal. While DENN has been very aggressive in returning approximately $40 million in free cash flow to shareholders in the last two years, it does appear as though the stock could get a significant boost if management chose to return the free cash flow to shareholders in the form of a dividend and not stock repurchases. [Read more…]

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