Commentary - 10/31/2007

Carpetbaggers 1 : Kansas City 0

While following the recent takeover of Applebee's Restaurants by IHOP, Inc., memories from the old business books I've collected popped into my mind. Especially those of "carpetbaggers." Just so there's no misunderstanding of this term, this definition will do: "Carpetbaggers" was coined from the carpet bags used as inexpensive luggage. It was originally a derogatory term, suggesting an exploiter who does not plan to stay."

In my opinion, the carpetbagger in Applebee's case was a Connecticut Yankee who goes by the name Richard C. Breeden. Formerly the chairman of the United States Securities and Exchange Commission, he had declared war on insider trading, but gave our latest President Bush a pass on Harken Energy.

Understanding such techniques, last year [2006] he founded Breeden Partners and acquired over 5% of Applebee's stock (financed by who knows). "Applebee's was put in play this year by the agitations of hedge fund operator Richard Breeden," says the Kansas City Star, 10/28/07 Business Section, Page D2. "Breeden and an associate [Laurence Harris] now hold seats on the 13 member board. Breeden will make about $22 million on his investment, while employees at the headquarters here were warned there will be job losses," says KCS on 7/22/07 Page D2. And people wonder how the rich get richer, and the poor get poorer. Oh, and one more example: "Breeden was going to ask shareholders to elect him and three of his picks to the board, but dropped the effort when Applebee's agreed to put him and Harris on the board and pay his firm $500,000 for its costs," says KCS on 05/26/07 Page C1.

Blackmail was too harsh a word for today's business world, so the term "greenmail" has evolved. Same thing in my thinking. By the way, I am not a current, nor former Applebee employee, nor ever a shareholder. My point in all this is to explain how a small percentage of shares can be used to control or strongly influence a public corporation. This shows that you DO NOT need to own the company nor have over 50% of the shares. You will find Applebee's major holders here, and IHOP's here. It becomes obvious that when you check out the Who Controls Money Center Banks that any company that has large outstanding loans is at the mercy of their banker's major holders.

For example, the KCS reported that "Jeff Omohundro at Wachovia Capital Markets LLC posted an underperform rating on the Overland Park-based restaurant chain's shares Monday," in KCS Business Section on 10/23/07, Page D30. The same article also said "His comments echo those of a month ago from Michael Smith at Oppenheimer & Co. Inc. Smith had suggested selling Applebee's shares because a private equity owner and some insiders oppose it."

Okay, this is where it gets interesting. Take a look at IHOP's major holders here. Isn't it simply amazing that no referee [SEC] called foul. Both Wachovia and Oppenheimer are Major Holders of IHOP, the BUYER! Oops, forgot that we're talking about the former head of the SEC. Sorry.

Now take a look at the major holders of Wachovia here. Strange how some of the major holders of Wachovia are the same major holders of IHOP and Applebee's. On top of that, in the article "Breeden Partners wins fight at Applebee's" below, the writer point out "But with lots of private equity money sloshing around, it now looks like Applebee's may ultimately succumb to a buyout. The company has hired Citigroup (NYSE: C) to explore the alternatives." Did you check the major holders of Citigroup? Talk about going to the fox to save the hen house. If Applebee's management noted these connections, they certainly saw they were surrounded.

Draw you own conclusions of America's "free markets." So, H&R Block is the next target for this particular carpetbagger. We'll see how that turns out. Here are the major holders of H&R Block.

Will the new score become Carpetbaggers 2 : Kansas City 0? Stay tuned.

NOTES: CNN Money: Ex-SEC chief said to plan hedge fund. Breeden Hopes to Win the Name Game.
Breeden Partners wins fight at Applebee's.
Breeden Capital Management LLC Files Initial Proxy Materials To Elect Four Nominees to the Board of Directors of Applebee's International, Inc.
Breeden Partners Acquires 5.24% Stake In Applebee's International, Inc.

2007 by Edward Ulysses Cate
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