Wendy's stresses the possibility of a sale

DUBLIN Ohio Wendy's International Inc. said it is focusing on a sale of the company in its exploration of "strategic options."

The quick-service giant had previously said that a sale of the concern was one of the options it would investigate. Now, it indicated, that course appears to be the appropriate route for realizing Wendy's stated objective of raising the value of shareholders' investment.

But Wendy’s also said it was exploring securitization financing, a maneuver that could in effect factor the value of future franchise royalties into the company’s present worth for the possibility of an issuing bonds or other lending alternatives. The company explained that a securitization could aid in a recapitalization of the quick-service franchisor, or be used by a buyer to help finance the acquisition.

"While a sale remains only one of the alternatives under consideration, we believe it merits more thorough examination," board chairman Jim Pickett said in a prepared statement released Monday morning. Pickett is also chairing the special committee charged with evaluating strategic alternatives.The committee is working with JP Morgan and Lehman Brothers Inc. to explore the possibility of a sale, Wendy's said.

"Our goal is to move forward expeditiously and to minimize disruption to the company and its operations," Pickett said. "We want management and our operators to focus on executing Wendy's business plan to grow sales and margins."

In disclosing the shift in strategic emphasis, Wendy's also issued a revised outlook for its 2007 financial performance. The company said it now expects its earnings before interest, taxes, depreciation and amortization, or EBITDA, to fall between $295 million and $315 million, compared with an earlier target of $330 million to $340 million. Because EBITDA is commonly used by would-be buyers to calculate the acquisition price of companies, the reforecast suggests Wendy's price could be lower than original estimates.

Wendy's said it was prompted to downgrade its EBITDA projection by lower-than-expected same-store sales and unexpectedly high commodity costs. It disclosed that comparable sales at U.S. company units are up only 0.7 percent year-over-year during the second quarter of 2007,  compared with a 3.8 percent rise for the first quarter.

The company's efforts to revive its namesake burger chain "is producing positive results," asserted chief executive Kerrii Anderson. But, she acknowledged, "the last two months have been challenging as we've aggressively adjusted pricing to bring Wendy's more in line with the market."

Acompany spokesman explained that the chain has been raising its prices in some markets to bring them in line with what competitors are charging for comparable products.

"We believe our new market-based pricing approach is the right long-term strategy to generate more positive store operating margins, but it has pressured transactions in the short term," Anderson said.