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Arby’s parent Triarc to acquire Wendy’s in $2.34B stock swap

Arby’s parent Triarc to acquire Wendy’s in $2.34B stock swap

DUBLIN OHIO Wendy’s International Inc. by Arby’s parent Triarc Cos. could be just what the beleaguered No. 3 burger chain needs to regain the operational efficiencies and coordinated marketing messages that once were its hallmark, some foodservice veterans contend. —The pending acquisition of

But many Wendy’s franchisees and family members of Wendy’s late founder, Dave Thomas, are not so sure, expressing concern that the two quick-service chains chase the same customer and that anticipated corporate cost-cutting under new ownership will only weaken Wendy’s infrastructure. —The pending acquisition of

Dublin-based Wendy’s agreed April 24 to be acquired by Atlanta-based Triarc, the most visible holding of activist investor Nelson Peltz, in a stock swap valued at $2.34 billion, capping years of contentious relations between the two parties. Under terms of the deal, which is expected to close in the second half of this year, Triarc will swap 4.25 shares of its class “A” common stock for each share of Wendy’s. —The pending acquisition of

The acquisition will create a quick-service empire that operates or holds the franchise rights to some 10,000 restaurants generating a combined $12.5 billion in sales. About 3,700 of those units are Arby’s sandwich shops, of which 1,147 are owned by Triarc. Wendy’s had 1,407 company-operated stores and 5,215 franchised units as of March 30. Triarc has said that both brands will remain autonomous, although Triarc chief executive Roland Smith will replace Wendy’s CEO Kerrii Anderson, who will remain with the company through a transition period. —The pending acquisition of

In announcing the deal, Triarc officials also outlined plans to reduce costs and strengthen Wendy’s breakfast, snack and late-night businesses, expand Wendy’s international presence, explore future acquisitions, and market to an older customer base. They also cited the possibility of co-branding Arby’s and Wendy’s outlets. —The pending acquisition of

“Working together with Wendy’s team, we expect to improve margins significantly at Wendy’s company-owned stores,” Smith said in statement. “We also expect to drive significant synergies and improve efficiency, resulting in substantial annual savings.” —The pending acquisition of

According to the plan, savings would eventually reach approximately $60 million annually, while planned improvements to Wendy’s corporate-store food, labor and operating-cost structures are projected to generate an extra $100 million in annual operating profit “over time.” Smith also has alluded publicly to layoffs, but no such actions have yet been detailed. —The pending acquisition of

But franchisee Bill Zanke thinks the projected cost cutting associated with the acquisition will curtail profit growth. Zanke, who owns nine Wendy’s in Boston and Worchester, Mass., said he had yet to speak to a single franchisee that was happy with the Triarc deal. —The pending acquisition of

“They say they are going to take another $60 million in overhead out, but when a company is already short-staffed like Wendy’s corporate is, it is hard for us to see how taking staff out will help build sales and profits for the franchisees,” he said. —The pending acquisition of

Craig Weichmann, managing partner of the M&A advisory firm Mastodon Ventures in Austin, Texas, said Wendy’s has suffered from a lack of effective leadership, and he cited as failures the brand’s scuttled Frescata sandwich line and “Red Wig” campaign. —The pending acquisition of

“This may be just what Wendy’s and its franchisees need to get back to the history of the Dave Thomas legacy of quality food, great marketing and fast service,” Weichmann said. “In order to jump-start itself, it needs effective leadership, and this is what Peltz’s group is offering.” —The pending acquisition of

Triarc shares closed at $6.30 on April 23, the day before the deal was announced, which, under terms of the deal, would create a value of $26.78 to Wendy’s shares, a 5.7-percent premium over Wendy’s April 23 closing price of $25.32. —The pending acquisition of

Wendy’s has about 88.3 million shares outstanding, creating a deal value of about $2.34 billion. Securities analyst David Palmer at UBS Equity Research in New York said that value is about 8.4 times Wendy’s 2008 projected enterprise value to earnings before interest, tax, depreciation and amortization. —The pending acquisition of

Weichmann said the deal is a good one in terms of current market valuations. —The pending acquisition of

“The market is not what it was, nor is the economy or the fundamentals at Wendy’s,” he said. “So maybe some are not happy with the price compared with what they may have garnered a year ago.” —The pending acquisition of

By most accounts, Thomas’ heirs share franchisees’ discontent with the deal. The Associated Press quoted Pam Thomas Farber, Dave Thomas’ daughter, as saying: “It’s a very sad day for Wendy’s and our family. We just didn’t think this would be the outcome.” —The pending acquisition of

To assuage such negative reactions, Peltz and longtime partner Peter May sent a letter to the family expressing enthusiasm for the deal and respect for Dave Thomas’ legacy, while saying that they only “want the best for Wendy’s.” —The pending acquisition of

The letter cited the acquirers’ long track record of investing in and helping to promote the growth of high-quality brands, including Snapple, Arby’s, Heinz and Tiffany. —The pending acquisition of

“We have full confidence in Roland Smith, Triarc’s CEO, and his ability to work with the Wendy’s team and its franchisees to execute a long-term growth strategy that will focus on building the brand to further enhance its many traditions of quality food and service,” they said. —The pending acquisition of

Roger Webb, who has worked with Wendy’s since 1970 and today owns 39 units in northwest Florida and Alabama, said that part of the problem with the deal is that both Wendy’s and Arby’s are competing for the same sandwich customer. —The pending acquisition of

“To me this seems to be a conflict because Wendy’s doesn’t want to be Arby’s and Arby’s doesn’t want to be Wendy’s, so why would the owners want to compete with themselves?” he asked. “With differing-type concepts, like Yum! Brands, I understand, but these are not really separate categories.” —The pending acquisition of

Much of the franchisees’ anxiety stems from fear of the unknown, which has been a factor at Wendy’s for more than a year, Webb added. —The pending acquisition of

Last summer, shortly after Wendy’s began exploring strategic alternatives, Peltz, who already owned 9.8 percent of the chain’s equity, had said he might offer up to $3.6 billion for Wendy’s, or as much as $41 per share. Wendy’s stock hit a high of $42.22 per share after that. Then last November, with the credit markets crumbling and Wendy’s performance continuing to decline, Peltz reduced his offer through an undisclosed bid by Triarc. —The pending acquisition of

Only a week before the merger agreement was disclosed, Wendy’s had rejected overtures by Triarc and Peltz’s Trian to acquire Wendy’s for $900 million in cash and an undisclosed amount of stock. The rebuff prompted Peltz and May to demand a special meeting of Wendy’s shareholders. —The pending acquisition of

The Wall Street Journal reported that a few days later Wendy’s board was leaning toward selling a piece of the company to a privateequity company, Kelso & Co., which would have then appointed longtime Wendy’s franchisee David Karam as CEO. The Journal, quoting anonymous sources, said that move was favored by franchisees. —The pending acquisition of

Repeated calls to Karam were not returned. —The pending acquisition of

Franchisee Webb agreed that an insider would be a better fit. “A franchisee looks out 20 years to pay a lease, while a large public company looks 12-14 weeks out to quarterly earnings reports,” Webb said. —The pending acquisition of

But Peltz and his partners came back with a deal that trumped the Kelso offer. —The pending acquisition of

The current deal, approved by both Wendy’s and Triarc’s boards of directors, is subject to the approval of Triarc shareholders, who must approve a bylaw change that would convert each class “B” common share into one share of class “A” common stock. After the deal is completed, the post-merger company would thereby have a single class of common stock. —The pending acquisition of

Since the beginning of Wendy’s strategic review, the chain has been challenged by slower sales than the burger sector’s No. 1 and No. 2 brands, McDonald’s and Burger King. No. 3 Wendy’s has struggled to create sales-driving products and to take advantage of the breakfast daypart, like McDonald’s has done. —The pending acquisition of

Currently, only about 1,000 Wendy’s outlets sell breakfast, following a launch begun last year. —The pending acquisition of

Wendy’s also reported a firstquarter earnings nosedive, which it blamed on “several unusual items,” including charges from its breakfast rollout, legal fees and higher franchisee incentives. —The pending acquisition of

Its net income for the quarter ended March 30 was $4.1 million, or 5 cents a share, down 71.8 percent from year-earlier earnings of $14.7 million, or 15 cents a share. Excluding expenses related to the company’s review and restructuring charges, net income would have totaled $8.4 million, or 10 cents a share, for the quarter, compared with $15.1 million, or 16 cents a share, a year before. Revenues declined 1.4 percent to $582 million, and firstquarter domestic same-store sales fell 0.1 percent at franchised units. Same-store sales at company-operated restaurants fell 1.6 percent for the quarter. —The pending acquisition of

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