Wendy’s – another day, another love letter

Nelson Peltz, chairman of Triarc and Trian Funds, announced that Triarc is thinking about making a bid for Wendy’s. The fast food chain officially put itself up for sale in June, after officially thinking about putting itself up for sale in May, due to the gentle prompting of Highfields Capital, formely Wendy’s largest institutional shareholder. Now Wendy’s largest shareholder (9.8%) is Trian Funds, owned by Peltz, who is pulling a slight variation on the attempted Kerkorian maneuver of selling a company to yourself (referring to Kerkorian’s rescinded attempt with Tracinda and MGM properties).
The only problem is that Peltz signed a one year agreement that prohibits Triarc from making a pass at Wendy’s, in exchange for seeing the companny’s super secret documents and financial data. Peltz thinks this is bogus, and wrote a SEC-filed letter to Wendy’s explaining how he doesn’t appreciate getting the cold shoulder from Wendy’s regarding his overtures.
Triarc considers itself a natural buyer for Wendy’s, leveraging its experience with oddly shaped meats as the franchisor of Arby’s. Triarc has retained JPMorgan and Lehman to do its bidding.
Peltz May Step Into Wendy’s Auction [DealBook]

Wendy’s now officially on 99 cent value menu

wendys-vanilla-frosty.jpg Wendy’s is officially exploring a potential sale, with no buyer, no timetable and no rules (and this time, it’s personal). This is the groundbreaking resolution of Wendy’s secret strategic review committee, which issues decrees about as meaningful as the “color” of terror on any given day. Before, the company was only exploring strategic options, but now, one of these options is officially a sale of the company (Terror Level = Delicious). The semantic shuffling is partly in response to the “suggestions” of Highfield Capital Management, Wendy’s largest institutional shareholder with a 8.5% stake in the company. Highfield sent a letter to Wendy’s board last month urging the company to put itself up for sale and criticizing the super secret strategic review committee.
Wendy’s to Explore Sale, Cuts 2007 Earnings Outlook [Wall Street Journal]

pancakes.jpg Analysts remain skeptical, and scared, over yesterday’s announcement that IHOP offered $2bn for Applebees. Some analyst comments:
“The merger will never go through for antitrust reasons. The resulting chain would be too American, and therefore subject to a host of patent violations.”
“A combination of IHOP and Applebees would be an unstoppable force in the American suburb. People wouldn’t leave, and the branches would develop into self-sufficient communities like the Arcologies in SimCity 2000 or the Bio-Dome invented by Pauly Shore or your average Wal Mart Super Center.”
“If you thought soccer moms were dangerous now or that ratings of Two and a Half Men were artificially inflated, just wait until IHOP buys Applebees. I don’t think the result will be a society any of us want to live in.”
“The last thing your inspirational high school indoor track assistant coach needs is a stack of pancakes to soak up his tears after learning that his picture made the restaurant wall. That’s what a $16 barrel of oriental chicken salad is for.”
“America is not ready for a Pancake and Riblet Platter.”
Aside from anti-trust and national security reasons, analysts are concerned that Ihopplebees will have operational issues. The two chains have different business models, with Applebees the more active restaurant operator. IHOP is a franchisor of all but 10 of its 1,306 locations while Applebees owns 500 of its 1,900 locations.
Applebees has been up for grabs since February after years of crap performance. IHOP is quite sick of its penchant for flapjackery and has been trying to buy another restaurant chain for years. IHOP hasn’t made any moves yet mostly due to PE firms and nutty target valuations.
Both chains are experiencing plunging profits on growing or flat sales. IHOP skipped 10% in reverse in Q1 on 2% revenue growth and Applebees reported a 65% profit plunge on flat sales.
Reported bid for Applebee’s spurs skepticism [Los Angeles Times]

How much is Outback worth?

croc dundee.jpg The bid for OSI Restaurant Partners, owner of the Outback Steakhouse chain, is creeping upwards due to pressure from major OSI institutional investors. Bain Capital and Catterton increased their initial bid of $40 a share ($3.1bn total) to $41.15 a share. This 2.9% bump still isn’t entirely satisfactory, as Lord Abbett (the #2 institutional shareholder in OSI) claims that with a decent turnaround the company could carry a valuation in the $50-$60 range, and therefore may reject the most recent bid. Shareholders are voting on the proposal on June 5.
Outback’s profit has dropped six quarters in a row due to higher beef and labor costs, gas prices, the housing slump (what?), an unseasonably cold April, global warming, the downward career spiral of Paul Hogan and cosmic rays.
Inexplicably, steaks at the Outback in Manhattan continue to trade in the mid $30 range (who came up with that price point, Sony?), despite industry peers (street meat) trading at a 80% discount. Seriously, it’s shocking. They should give you a T-shirt that says, “I could’ve eaten at Strip House for the same $$” for eating at that place.
Parent of Outback Chain Accepts Higher Bid [New York Times]

krispy_1_bg_011401.jpg Krispy Kreme (NYSE: KKD) may be down from it’s 2003 share price of around $50, and down 24% this year alone, and still recovering from the decision to oversaturate the market with wide distribution, dieting trends in the Atkins fall-out, trans-fat issues, being a public face of “obesity epidemic” stories, a $75mm shareholder lawsuit that resulted in an executive shake-up augmenting investor confidence issues with management and… (5 minutes later) …
BUT the company is poised to turn the corner (for reals this time) and has entered expansion mode – planning to have franchises in all 50 states, according to a company disclosure filed yesterday. There’s no time like the present for Krispy Kreme, as donut eating (or at least imagery) is set to ramp up this summer in conjunction with the release of The Simpsons Movie (July 27), featuring Homer reaching for a donut in teaser posters.
Krispy Kreme Out of the Hole? []

frosty.jpg Has anyone walked into a Manhattan Wendy’s lately (they can be tough to spot)? Aside from feeling like Vladimir (or Estragon, or even the dude on the leash) in the interminable queue, and wanting some bloodwork done (and possibly and STD test) after your meal, it’s clear to see that the place is slipping. This is why Highfields Capital Management, the largest institutional shareholder of Wendy’s with an 8.5% stake, sent an aggressive letter to Wendy’s board this week. Wendy’s current board, which contains the Golden Girls and 10 Dave Thomas impersonators (seriously, check it out), must be a bit worried about Highfields’ myriad of complaints, primarily the one about the current board members running the company. The investor wants Wendy’s to go one step beyond the initiative to explore “strategic options” which the board laid out last month and sell the company to anyone who’s willing to actually exchange something of value for it.
Highfields’ letter dissed the company’s decision to name former CFO Kerrii Anderson the new CEO (primarily because of the spelling of her first name, and the fact that Kerrii often puts two hearts over those “i”s) and said that the company’s recent results, marketing strategy, Frescata sandwiches, efforts to improve operations and same-store musk levels have been total crap. The letter asks several other tough questions like, “Why aren’t you disclosing the members of your secret strategic review committe?,” and “What’s in a frosty?”.
Wendy’s Shareholder Pushes for the Sale of Chain [Wall Street Journal]