Arby's buys out Wendy's

COLUMBUS, Ohio — After at least two rejections, billionaire Nelson Peltz has finally succeeded in landing Wendy's in a $2.3 billion deal that would add the chain known for its square burgers and Frosty desserts to his ownership of Arby's and its roast beef sandwiches.

Now, the investor known for agitating corporations to boost their stock price has to figure out how to make both profitable while the economy slumps and more Americans are saving money on food and fuel by staying home to eat.

Atlanta-based Triarc Companies Inc., owned by Peltz, said Thursday it will pay about $2.34 billion in an all-stock deal for the nation's third-largest hamburger chain, started in 1969 by Dave Thomas. Wendy's had rejected at least two buyout offers from Triarc.

Thomas' daughter, Pam Thomas Farber, said the family was devastated by the news. "It's a very sad day for Wendy's and our family. We just didn't think this would be the outcome," said Farber, 53. If her father were alive to hear news of the buyout, "he would not be amused," she said.

Triarc will pay about $26.78 per share for the company, which has about 87 million shares outstanding. The offer is well below the $37 to $41 per share that Peltz said last summer he was ready to offer for Wendy's.

Wendy's shares rose 4.2 percent to $26.39 Thursday. They traded as high as $42.22 last summer, not long after Wendy's announced the formation of a special committee to boost its stock price.

Under the terms of the deal, expected to close in the second half of the year, Wendy's shareholders will receive 4.25 shares of Triarc Class A stock for each share of Wendy's stock. Triarc said its shareholders will have to approve a charter amendment in which each share of its Class B stock will be converted into Class A stock.

Since 2005, Peltz has pushed for change at Wendy's, including the spinoff of the Tim Hortons coffee-and-doughnut chain and cutting corporate expenses, to increase the company's stock price. His Trian Fund and allies own 9.8 percent of Wendy's stock.

It's a tactic similar to what Peltz has used at other companies where Trian has become a significant investor, such as Cadbury Schweppes PLC and H.J. Heinz Co. Trian also owns shares of Tiffany & Co. and Cheesecake Factory Inc., according to regulatory filings.

The deal comes as Wendy's struggles with declining profits and weak sales compared with rivals McDonald's Corp. and Burger King Holdings Inc.

Wendy's said Thursday that its first-quarter profit fell 72 percent to $4.1 million, or 5 cents a share, in part because of expenses tied to the work of a special board committee that has been studying ways to boost the company's stock. Revenue fell to $513 million from $522 million a year before.

Sales at company-owned stores opened at least a year, considered a key indicator, fell 1.6 percent in the quarter and 0.1 percent at U.S. franchise restaurants.

Wendy's also has failed to connect with consumers in several advertising campaigns that have been tried since Thomas' death in 2002 and has had limited success adding new products and with its breakfast menu. Dave Thomas, always wearing a white short-sleeved shirt and red tie, became a household face when he began pitching his burgers and fries in television commercials in 1989.

"It's a company that's sort of lost its way," said Bob Goldin, executive vice president of Technomic Inc. in Chicago.

Still, even with a slumping economy in which other restaurant chains have seen sales decline recently, there is value, analysts say.

"We've always felt Wendy's had a decent chance of a turnaround in its business," said John Owens, an investment analyst with Morningstar, citing its new chicken wrap sandwich and the addition of breakfast at many restaurants.

Improved cost controls over food, labor and other expenses should generate $100 million a year in operating profits over time, Triarc said in the statement announcing the deal.

Eliminating duplicate corporate functions and streamlining support services is expected eventually to save $60 million, said Triarc, which operates 3,700 Arby's restaurants.

Triarc also said expansions for both brands are planned for the U.S. and overseas and that the company will look at a dual-concept unit in high-cost real estate markets. Triarc said it also will change its name to include the Wendy's name.

The deal caps two chaotic years for Wendy's in which it has sold or spun off operations, slashed its corporate staff and had its wholesome image tarnished by a woman who falsely claimed she found part of a finger in her chili.

Farber said the family didn't think much of the tactics used by Peltz and Triarc.

"They came after them (Wendy's) and came after them and came after them," she said. "They spun Tim Hortons off, they did this, they did that. They did everything they asked but it wasn't enough."