NEW YORK While many analysts expect Wendy’s International Inc. eventually will be purchased by a private-equity firm, speculation of a union between Wendy’s and Yum! Brands Inc. circulated Friday based on a report from a news service specializing in mergers and acquisitions.
An article from dealReporter, said Louisville Ky.-based Yum may be actively considering a purchase of the No. 3 burger chain, and that former Yum parent company, Pepsico Inc., could consider taking an equity stake.
UBS Securities LLC analyst David Palmer, based here, said in a research note that the scenario is “highly unlikely,” but does present some synergies.
The dealReporter story about the possibility of Yum’s interest in Dublin, Ohio-based Wendy’s cited two industry sources, including an “insider with knowledge of Yum’s strategy” and another source that “provides strategic advice in the foodservice sector.”
“A hamburger chain would make a nice addition to Yum Brands, and I know they’ve been looking at it for a long time,” the source with knowledge of Yum’s strategy told dealReporter. Yum is parent to the KFC, Taco Bell, Pizza Hut and other quick-service brands.
Yum officials said the company does not comment on market speculation. Wendy’s officials have said they would not provide updates on the strategic review and exploration of a sale the company began in April.
While the Yum-Pepsi-Wendy’s union is unlikely, analyst Palmer said in his note, “there could be significant synergies” to such a scenario. First, Palmer said, Yum would be the “best positioned in the industry” to help Wendy’s earn more from its business through best practices in purchasing, better cost control, improved labor cost flexibility and co-branding, and international expansion opportunities.
Palmer said Pepsi could contribute “$1 billion or more” and it “would likely mean a huge account win” for Pepsi’s fountain beverage division.
Still, most analysts, including Palmer, predict 6,600-unit Wendy’s will be sold to a private-equity firm because of burger chain’s high purchase price and the ease of restructuring Wendy’s as a private entity rather than as a public company.
Most analysts and observers have focused on Trian Fund, the investment vehicle for activist investor Nelson Peltz, as a potential buyer of Wendy’s. Peltz had been instrumental in getting Wendy’s to spin off its former Tim Hortons brand and make other strategic moves, like large share repurchases. Peltz may also explore a purchase of Wendy’s thought his Triarc Cos., which owns the Atlanta-based Arby’s sandwich brand.
Earlier this month, Peltz sent a letter to Wendy’s asking the burger company to invite Triarc into the due diligence process.
