Wendy's rejects new Arby's merger plan, $900m offer: spurned suitor Peltz calls for shareholder confab

Nation's Restaurant News, April 28, 2008 by Richard Martin

DUBLIN, OHIO -- A year after a special board committee began weighing a possible sale of the company, Wendy's International has rejected a merger with Arby's or a newly proposed $900 million buyout, prompting rebuffed suitor Nelson Peltz to call for shareholders to decide Wendy's fate.

The No. 3 burger brand's rejection of what Wendy's chairman James Pickett called "misleading" twinned proposals came less than 24 hours after the company received them, according to an April 18 letter to Pickett from Peter W. May, president of Trian Fund Management and vice chairman of Arby's parent Triarc Cos.

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Both Trian and Triarc are controlled by activist investor Peltz, who has made several formal proposals since last year to acquire or take control of Wendy's. He already controls 8.6 million Wendy's shares, or about 9.8 percent of its equity, and three seats on the company's board of directors.

In May's letter, disclosed to shareholders through a regulatory filing, he expressed concern about the current direction of Wendy's and also raised the possibility that the Dublin, Ohio-based company might be considering the sale of a minority stake to another bidder.

However, Pickett fired back the same day in a letter to May, suggesting that his failure to identify himself as also being vice chairman of Trian I Acquisition Corp.--a so-called blank-check buyout fund that raised $920 million in February through an initial public offering--left Wendy's shareholders "with a very misleading picture."

Pickett also blasted May for "inconsistent" statements and actions in the nine months since Trian first expressed interest in acquiring Wendy's, including the failure of May's letter to state that the value ascribed to Wendy's as part of the proposed Arby's merger was below a level that Wendy's had previously told Trian was unacceptable. Pickett also found fault with May's claim that neither of the new takeover offers were conditioned on any third-party financing, since funds held by Trian I Acquisition belong, Pickett said, to its shareholders, not to Trian or Triarc.

Wendy's rejection of those firms' latest acquisition bids was because of their "inadequacy" and Wendy's "strong belief" that its shareholders "need to have the special committee process concluded," Pickett said. He also indicated that the committee would reveal something about its review "in the very near future."

A longtime Peltz associate, May recounted in his letter to Pickett that one of the snubbed proposals would have placed Wendy's, whose mostly franchised system comprises some 6,600 namesake restaurants, under the Triarc corporate umbrella with Arby's, whose nearly 3,600 sandwich restaurants include 1,148 owned by Triarc.

The other option, May said, was Trian Fund's 100-percent acquisition of Wendy's for more than $900 million in cash and stock--a fraction of the price Peltz had indicated he was willing to pay for the company nine months ago.

The $920 million IPO by Trian I Acquisition, which began trading Feb. 5, was said to be the second-largest public offering ever by a blank-check outfit, also known as a special-purpose acquisition company. Peltz and associates have been investing in food firms since the 1990s, including Triarc's 1997 acquisition of bottled-beverage marketer Snapple for about $300 million, which was sold in 2000 for $1.5 billion.

Compared with Trian Fund's $900 million offer, Wendy's has a total market capitalization of about $2.2 billion, based on recent trading prices and number of shares outstanding. Word of the latest Peltz overtures boosted Wendy's share price 9.3 percent for the week ended April 18, to $25.38 per share. However, the stock still languished $3.20 above its 1-year low, far off its 52-week high of $42.22.

That high valuation was reached last year amid speculation about buyout bidding, which has since been supplanted by analysts' suspicions that the slumping burger chain franchisor would choose instead of a sale to attempt an overhaul by replacing senior management, selling corporate restaurants and repurchasing stock.

Several key senior executives have left the company in recent weeks, and Steve Farrar, who took early retirement as Western region senior vice president in 2006, recently rejoined Wendy's as chief of North American operations.

Before the credit markets were rocked as deeply as they have been recently, Peltz had indicated a willingness last July to pay $37 to $41 per share for Wendy's, or between $3.2 billon and $3.6 billion. However, when Triarc finally made its first formal offer for Wendy's in November, the suitor said it was for a lower, though undisclosed, price.

Just a few months later, with that offer still unanswered by Wendy's, Peltz proposed another scenario for gaining control, with Trian Partners informing securities regulators it was proposing to expand Wendy's board from 13 to 15 directors and put six seats up for votes at the company's next annual meeting.

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Analysts said Peltz's move appeared to be an effort to force an end to Wendy's prolonged strategic review and to oust Wendy's chief executive Kerrii Anderson.