Wendy’s/Arby’s to Sell Arby’s to Roark, Undoing Peltz Tie-Up

Wendy’s/Arby’s Group Inc. agreed to sell control of the Arby’s chain in a deal valued at $430 million, undoing the tie-up engineered by billionaire investor Nelson Peltz.

Roark Capital Group, an Atlanta-based buyout firm, will get about 82 percent of Arby’s, while Wendy’s/Arby’s will keep the rest, the companies said today in a statement. The buyer will pay $130 million in cash and assume $190 million of debt.

The move gives Roark control of more than 3,600 sandwich shops under the Arby’s brand. The chain, united with Wendy’s in 2008 under the direction of Peltz, has sought to remake its brand after at least two years of slumping sales, debuting ads touting its menu items as “Good Mood Food.”

“This is definitely a risk,” said Peter Saleh, a restaurant analyst at Telsey Advisory Group in New York. Roark is “taking on a brand that needs some capital behind it and needs some help.”

Peltz’s Trian Fund Management LP was the largest Wendy’s/Arby’s shareholder as of March 31, according to data compiled by Bloomberg. Peltz, who united Wendy’s and Arby’s in a $2.56 billion all-stock deal, is the restaurant’s biggest individual investor. Wendy’s/Arby’s shares have declined 23 percent since the deal closed on Sept. 29, 2008. Carrie Bloom, a spokeswoman for Trian, declined to comment on the purchase.

Restaurant Deals

Wendy’s/Arby’s rose 4 cents, or 0.9 percent, to $4.56 at 4 p.m. in New York Stock Exchange composite trading. The shares have fallen 1.3 percent this year.

There have been 52 restaurant transactions globally in the past 12 months, Bloomberg data show. The largest was 3G Capital Inc.’s takeover of Burger King Holdings Inc. for $3.93 billion completed in October.

After the Arby’s sale was announced in January, Peltz said during an investor conference that Wendy’s had “substantial” growth potential. He likened the Wendy’s/Arby’s breakup to McDonald’s Corp., which has sold off smaller brands including Boston Market Corp. and Chipotle Mexican Grill Inc.

The purchase will trigger an income tax benefit worth $80 million to Wendy’s/Arby’s, whose stake in Arby’s is valued at $30 million under the transaction terms. Last year, sales at Arby’s fell 9.2 percent to $966 million, while Wendy’s dropped 2.7 percent to $1.98 billion.

“You just have a lot more competition from the fast-casual space and from Subway,” Saleh said. Brothers Leroy and Forrest Raffel opened the first Arby’s in Ohio in 1964, serving roast beef sandwiches, potato chips and iced tea.

‘Growth Opportunities’

Wendy’s won’t use cash proceeds from the sale to pay down any more debt, Chief Executive Officer Roland Smith said in a telephone interview. The company will “invest in the Wendy’s growth opportunities” by promoting new menu items, remodeling stores and opening new locations both in the U.S. and abroad.

Arby’s and Wendy’s both face surging raw-ingredient costs, with beef prices expected to rise 20 percent this year, Chief Financial Officer Stephen Hare told analysts during a conference call on May 10.

In May, the company said first-quarter sales at Wendy’s North American stores open at least 15 months were little changed. That compares with positive U.S. sales trends at McDonald’s Corp., which has drawn customers with smoothies and McCafe drinks. Arby’s North American same-store sales rose 5.5 percent in the quarter, as the restaurant introduced premium Angus roast beef.

Roark’s other restaurant investments have included Seattle’s Best Coffee and the Auntie Anne’s pretzel chain. The firm, which has more than $1.5 billion in equity capital under management, also said today that it acquired the Corner Bakery Cafe and Il Fornaio restaurant chains.

(Updates share price in sixth paragraph.)
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