Wendy's Buyout Could Be a Tasty Value Deal For Unnamed Suitor

Before you go, we thought you'd like these...
Before you go close icon
Unnamed Suitor Pursuing Wendy's/Arby's Buyout Deal After reaching $5.25 in late April, the shares of Wendy's/Arby's Group (WEN) have been in a steady decline, falling to $4.05 this week. But the stock has seen a nice rebound over the last couple days, increasing to $4.60 thanks to buyout chatter surrounding the company.

Chairman Nelson Peltz said that an unnamed party has indicated interest in a deal. As the largest shareholder of the company, Peltz certainly would be interested in a transaction -- at an attractive price, of course. After all, he's the legendary takeover artist who was responsible for structuring the Wendy's/Arby's merger back in 2008.

To get things rolling, Peltz said he will hire a financial advisor and explore all options, including a possible recapitalization.

Taking a Bite of Wendy's/Arby's


In the brutally competitive fast-food business, it's important to have scale. This is been a boon to leaders like McDonald's (MCD) and Burger King Holdings (BKC), which can offer tasty food at rock-bottom prices. Unfortunately, as the No. 3 player in the market, Wendy's/Arby's has languished and been mostly reactive.

But there are some encouraging signs. In the latest quarter, Wendy's saw an 0.8% increase in same-store sales, despite tough weather in much of the country during February. Also, margins increased from 11.1% to 15.4% (this is from the latest investor presentation).

However, the fact remains that the Arby's business continues to lag. Actually, there was an 11.5% decline in same-store sales for the quarter and margins fell from 14.2% to 10.8%.

But a suitor for a company would likely focus on the overall EBITDA for Wendy's/Arby's, which increased by a nice 14.7% to $92.1 million in the quarter.

Prospects for a Buyout

A buyout seems realistic for Wendy's/Arby's. Interestingly enough, the company is in the same kind of predicament as CKE Restaurants (CKR), which recently agreed to a $619 million buyout. Both companies have suffered from the fierce competitive environment as well as the decline in the economy.

The problem is that a Wendy's/Arby's deal may not fetch much of a premium: The company's enterprise value is roughly 6.88 times EBITDA, which compares to CKE's 6.51 multiple. And Wendy's/Arby's performance will probably continue to lag behind its competitors, which will certainly impact the deal's valuation.
Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners