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 At long last, activist investor Nelson Peltz roped Wendy's International Inc., with an all-stock deal worth nearly $2.34 billion that values Wendy's shares at premium of more than 5.7% to Wednesday's close. The deal comes a week after the No. 3 burger chain in the U.S. rejected two offers from Peltz's companies and nearly a year after the company unveiled a strategic review.
Under terms of the deal, Wendy's shareholders will receive 4.25 Class A shares in Triarc Cos., the parent of smaller chain Arby's Restaurant Group Inc. and of which Peltz is chairman, for each Wendy's share they own. Triarc closed down 1.72% Wednesday at $6.30, while Wendy's shares closed up .96% at $25.32. The news comes nearly a week after Peter May, the president of Peltz's hedge fund Trian Fund Management LP and vice chairman of Triarc Cos., on April 18 revealed plans to demand a special meeting of Wendy's shareholders after learning the Dublin, Ohio burger chain had rejected two separate offers for Wendy's -- one that involved combining Wendy's and Arby's and another that involved an offer for Wendy's worth $900 million in cash and an unspecified amount of stock. Peltz, whose funds hold a 9.8% stake in Wendy's has been steadily pressuring the burger chain for months. The activist in a filing Feb. 11 upped his campaign, unveiling plans to nominate six directors to Wendy's board and increase the board to 15 from 13. He was lobbying for the election of: Jerry Levin, Jeffrey Bloomberg, Ulysses Bridgeman, Kenneth Gilbert, Richard Mandell and Gregory Sachs. The news came weeks after Wendy's special committee said Jan. 28 it was in the final stages of its strategic review process and three months after Triarc offered to buy the company at an undisclosed price, but one that was below the $37 to $41 per share range it had offered four months earlier that had valued the company at $3.2 billion to $3.6 billion. (See more below.) Meanwhile, El Pollo Loco Holdings Inc. was at the end of December the latest fast food chain to make deal headlines. The Costa Mesa, Calif.-based company, which specializes in Mexican-style grilled chicken, said it had taken a $45 million injection from Los Angeles-based private equity firm Freeman Spogli & Co. to fuel expansion. The news comes nearly 14 months after the company, a holding of a Trimaran Capital Partners affiliate, scrapped plans to go public, as The Deal's Paul Bonanos noted. Also in December, Burger King Holdings Inc. was looking East -- to China and the rest of Asia -- to more directly go up against burger chain front-runner McDonald's Corp. According to a Reuters interview with chief executive John Chidsey, the company expects half of its revenues will come from beyond the U.S. within five years and that it expects to have 250 to 300 outposts in China by then, while BK is returning to Japan, from which it retreated several years amid fierce competition from other fast-food chains like McDonald's, which has outposts outnumbering its own by 80:1 and KFC, the Dec. 20 report said. A year and a half after taking Burger King public in an offering that quadrupled the value of their stake, the burger chain's private equity backers unveiled plans Nov. 5 to take home some of the bacon on their investment, selling slightly less than a third of their combined stake in a secondary stock offering. TPG, Bain Capital LLC and Goldman Sachs Capital Partners said they would sell 23 million shares. As The Deal's David Carey points out:
News of Burger King's Eastern expansion came as Wendy's was entertaining offers, including one from Peltz (who separately Dec. 19 was reported to be taking a stake in casual dining chain Cheesecake Factory Inc.). Peltz's Triarc Cos. offered on Nov. 12 to buy Wendy's, but at a lower price than it had projected less than four months earlier. Just how much lower, it didn't say. AUCTION HEAT In a regulatory filing Nov. 13, Triarc said only that the offer, which would be primarily cash and a portion paid in Triarc equity, was "below the valuation range" that it said it was prepared to offer in a letter sent in late July. The letter indicated Peltz's firm was prepared to offer $37 to $41 a share for the Dublin, Ohio-based hamburger chain, a bid that valued the company at $3.2 billion to $3.6 billion. Wendy's opened its books to Triarc in August. The news came as media reports indicated the auction might run into problems and see lower bids due to weak credit markets and unfavorable terms imposed by J.P. Morgan Chase & Co. and Lehman Brothers Inc. A Wall Street Journal report Nov. 14 indicated that, according to a source, Triarc's offer doesn't include the staple financing the lenders have offered. Despite market conditions, the company drew several prospective suitors, and according to a Journal report Sept. 18, more than 12 parties signed confidentiality agreements. However, citing a source familiar with the matter after the bids came due Nov. 12, the Journal said a consortium led by Fidelity National Financial Inc. chairman William Foley decided against bidding because of the poor terms of the staple financing and uncertainty that management really wanted to sell the company. Foley, a one-time chairman of Carl's Jr. and Hardee's parent company CKE Restaurants Inc., teamed up with Thomas H. Lee Partners LP, Oaktree Capital Management LP and Ares Management LLC on a bid. According to the Journal, it wasn't clear whether an offer was submitted by a group that included David Karam, president of Cedar Enterprises Inc., which owns 134 Wendy's restaurants; Kelso & Co.; and Oak Hill Capital Partners. Meanwhile, a conflict between franchisees and the company has brewed. A group of Wendy's franchise owners, including Peltz board nominee Ulysses Bridgeman, representing more than 1,100 restaurants, or 25% of U.S. franchise owners, sent a letter to the board dated Sept. 8, alleging it had been left out of the strategic review process and a lack of concern or oversight on the part of the board. Further, the franchisees requested the board instate guidelines aimed at quality control. The company's chairman countered with his own letter refuting the charges against board oversight and asking for a candid conversation. As the sale process went on, Wendy's gave Sandell Asset Management Corp., part of an investment group that has Peltz at its helm, access to its books earlier in September. Peltz -- whose funds own nearly 8.6 million Wendy's shares and earlier in 2007 saw to the addition of three hand-picked nominees to Wendy's board -- indicated late July 30 that Triarc would be willing to pay up to $4.1 billion for the burger chain, but only if the two could come to terms on the confidentiality agreement by the end of the day on Aug. 1. Earlier in July, Peltz took issue with terms imposing a standstill agreement on his company, thereby limiting its flexibility integrating Arby's -- the sole asset of Peltz-controlled Triarc since it unveiled plans April 30 to sell its controlling stake in money manager Deerfield & Co. LLC for nearly $300 million -- and Wendy's. In his letter July 30, Peltz complained of terms requiring the deal be funded through staple financing, or Wendy's financial adviser lending the buyer the money to finance the deal, which he complained would hinder flexibility. Peltz indicated he would send a new agreement and asked that it be signed by 5 p.m. on Aug. 1. Wendy's first unveiled a strategic review April 25 and officially put itself up for sale June 19. Bowing to investor pressure, the company took its Canadian coffee and doughnut chain, Tim Hortons Inc., public in March 2006, pricing 29 million shares at about $23.16 a share and seeing them rise to $33 the same day. Wendy's hung on to 82.75% of Tim Hortons' shares until Sept. 29, 2006. A bit harder to swallow was Wendy's sale of its own Mexican quick-serve chain Baja Fresh to West Coast-based investor David Kim for $31 million -- 88% less than it paid for the chain in 2002. It seems, however, that cutting quick-serve Mexican, coffee and doughnuts from its diet was not enough to placate Wendy's shareholders hungering for higher returns. TRIMMING THE FAT Meanwhile, McDonald's Corp. said Aug. 6 it would sell its Boston Market Corp. chain to Sun Capital Partners Inc. for undisclosed terms, seven months after putting the ailing chain on the block. The deal closed Aug. 28. All the while, the leading fast-food company continued to trim its diet to focus on hamburgers in high-growth areas. A Brazilian press report in March said Oakbrook, Ill.-based Mickey D's was near a deal to sell its burger joints in Latin American. Brazilian business daily Valor Economico said citing sources that financial bidder Pactual was the likely buyer and that the deal price was near $600 million -- far short of what McDonald's was expecting, according to a Reuters report. McDonald's denied the report, though acknowledged it has been eying Latin America as one region where it would like to set up "developmental licensee ownership," or a structure in which local investors put their capital and resources into expanding the brand regionally and McDonald's collects royalties. McDonald's went on a fast-casual restaurant binge eight years ago, when it bought Donatos Pizzeria Corp. in 1999 for undisclosed terms. A year later, it bought Boston Chicken Inc.'s Boston Market restaurants out of bankruptcy with $173.5 million and picked up the rest of Chipotle Mexican Grill Inc. it didn't already own from the chain's Denver-based founders. The restaurants were cobbled together under the Partner Brands umbrella, which would become a largely unprofitable unit and reshuffled a few years later. In 2003, McDonald's cut Italian from its diet with the sale of Donatos back to its founder and pulled its money out of Fazoli's Restaurants, taking a charge valued then at between $289 million and $355 million. McDonald's originally had aggressive expansion plans for Donatos, but the decision to sell was part of a broader move to recast most of its unprofitable Partner Brands businesses. Concurrently, McDonald's stopped adding Boston Market Corp. restaurants outside the U.S. and closed its Pret A Manger restaurants in Japan. Three years later, McDonald's took its quick serve Mexican outfit Chipotle Mexican Grill public in a stellar debut -- Chipotle shares doubled in their first day of trading to $44 apiece. They rose to a 52-week high of $67.77 in May 2006 and hovered around $57 apiece Jan. 12. According to a regulatory filing, as of Sept. 30, 2006, Mickey D's still owned more than 83% of Chipotle shares. THEIR WAY A few months after McDonald's unleashed Chipotle to the hungry public markets, Burger King sizzled in its own debut, pricing its shares at the $17 top of its range and raising $425 million. The performance enabled Texas Pacific Group, Bain Capital LLC and Goldman, Sachs & Co.'s private equity arm, who sponsored the burger chain's $1.5 billion leveraged buyout in 2002, to quadruple their equity investment before lunchtime on May 18. The Deal's Christine Idzelis and Peter Moreira wrote:
The private equity backers revealed Feb. 5 they would book another gain on their investment and sell down their stake in the company, unloading at least 20 million shares for at least $400 million. The burger titans may enlist the services of Andover, Mass.-based startup Exit41 Inc., which recently closed a $7 million round of funding for its system and software aimed at speeding up the drive-through process. The company runs a call center for taking orders and quickly transmitting them to kitchens for fulfillment, while a digital photo of the caller's car helps match order to customer. Already having jumped in the passenger seat are some franchisees of Chinese take out group Panda Restaurant Group Inc. and Mickey D's burger peers, Wendy's and Burger King. Whether they adopt the call center for quick serve on any grand scale, one thing is certain -- the country's three leading fast foodies had quite a 2006, marked by paring unhealthy assets and sizzling IPOs for the hamburger giants and their holdings. --Carolyn Murphy
CategoriesComments
From: Fur Trapper,
Ben Stein, the financial writer (and actor), wrote a landmark analysis of Peltz's rise in 1989. Asked recently what he thought of Peltz today, Stein said: "Trusting him to help the ordinary stockholders is like trusting Dracula to run a blood bank."
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February 20, 2008 2:44 PM
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If Triarc does have its eye on Wendys, it certainly holds some good corporate ties to back up its offer. Peter Rothschild is the head of Triarc's asset management business AND is a Wendy's director. (see article: http://www.newsvisual.com/newsvisual/2007/07/triarc-and-wend.html ). It's doubtful that Wendy's would need that much convincing to accept an offer from Triarc.