News: Analysis & Commentary: Dealmakers
Does Triarc's Top Brass Have a Secret Plan?
Investors say a buyback is really leading up to a sale
Just what are Nelson Peltz and Peter W. May up to? The wheeler-dealers from the 1980s are the largest shareholders in Triarc Cos., the New York-based parent of such once-tarnished brands as Snapple, Royal Crown Cola, and the Arby's fast-food chain. And it's clear they want to own more.
First, on Apr. 22, they upped their stake from 25% to 31%--not with their own money, mind you. Peltz, Triarc's chairman, and May, its chief operating officer, arranged for Triarc to buy back 3.8 million shares for $69 million through a Dutch auction. That reduced the number of outstanding shares and left the Chairman and COO with a larger proportion of what's left. More such auctions, in which the seller sets a minimum and maximum price, are being considered. So, too, are repurchases on the open market. The buybacks follow an attempt by the twosome to take Triarc private in October--when shares hit $13. That effort failed in March when shareholders said the $18-per-share offer was too low.
Why do Peltz and May want more of Triarc? It's true they presided over a comeback at Snapple Beverage Co., which had languished under Quaker Oats Co. And after selling Arby's outlets to franchisees, Triarc has boosted returns there, too. In 1998, Triarc turned its first profit this decade--$15 million on $815 million in sales. And analysts now say earnings could double this year. Still, RC is an also-ran cola, and the stock price is way off its top of 28 1/16 in March, 1998. It closed at 19 3/8 on Apr. 28.
Disgruntled investors--such as retired Chicago lawyer Burton R. Abrams, whose family owns more than 25,000 shares--suspect that Peltz and May have a secret plan to increase their stake for as little as possible and then sell Triarc. That's not an original ploy for them: The investing duo scored big in 1988 by selling canning giant Triangle Industries Inc. to French container maker Pechiney--after increasing their Triangle holdings from 13% to 62%. Then, investors sued, accusing Peltz and May of withholding information. The pair denied the charge, but agreed to pay half of a $75 million settlement.
Now, Peltz and May may already have a bidder, says one well-placed industry source, who asks to remain anonymous. The prospective buyer, he says, is Cadbury Schweppes PLC, which owns Seven-Up and Dr Pepper. "Nelson and Peter are laying the ground work to sell in the next 12 months, once they have upped their stakes for a really big payday," says the source close to the British beverage-and-candy giant. He says Cadbury has shown interest but has made no commitment. Cadbury declined to comment.
Peltz and May adamantly deny they are seeking to sell Triarc now--although they don't rule out a sale in the future. They say they did the buyback to buoy the stagnant stock price (chart). "There is no exit strategy," says Peltz. "We've never had a conversation about selling the business." He notes that he periodically talks to Cadbury because it is one of Triarc's major beverage distributors.GOING DUTCH. But if their aim was to raise the stock price, why use a Dutch auction? Such sales place a cap on the price--in this case $18.25 a share--instead of letting the market set the price. "With a Dutch auction, you get more stock all at once, and it's easier to control the price," says Ann H. Gurkin, an analyst at Davenport & Co. in Richmond, Va. Triarc says it went the Dutch-auction route because it's quick. At least two shareholder lawsuits have been filed.
Unhappy shareholders also note that when Peltz and May first announced the auction on Mar. 12, they didn't tell shareholders that a special committee of Triarc's board valued the shares in the low to mid-twenties, when the two tried to take it private. That information was only released in an auction supplement on Apr. 8, 14 days before the auction was to be completed. Although Triarc says most investors already knew about the valuation, the information had never appeared in print before.
If they do sell, it would be a big payday for Peltz and May. They bought the company in 1992, when it owned only RC and Arby's, for $72 million. Then in 1997, Triarc bought Snapple for $300 million from Quaker Oats, which had paid $1.7 billion for it three years earlier. Today, analysts figure, Triarc could fetch $1 billion to $1.2 billion in a buyout.
Dissident shareholder Richard M. Feldman now warns investors to avoid any buyback and hang on for the big sell-off. He wants Peltz and May to "fatten up the cow for an eventual slaughter that will benefit us all." Otherwise, he says, the feast will be served at a table for two.By Diane Brady in Greenwich, Conn. and Larry Light in New YorkReturn to top