Wendy’s independent committee unanimously rejected an unsolicited $7.35-a-share cash offer, valued at about $1.4 billion, from a group led by activist investor Nelson Peltz’s Trian Partners, the company said Nov. 5. Wendy’s also adopted a limited-duration shareholder rights plan, often called a poison pill.
Key Highlights
- The offer was $7.35 per share in cash, about a 20% premium to the Oct. 27 closing price, The Epoch Times reported.
- Wendy’s board chair said the offer “substantially undervalues” the company’s standalone prospects.
- Trian holds about 16.3% of Wendy’s shares, according to The Epoch Times.
- It is not yet clear whether the investor group will raise its bid or take other action.
The Offer and the Bidders
Wendy’s said on Oct. 28 that it had received an unsolicited, non-binding proposal to buy all shares not already owned by the investor group. The group includes Trian Partners, Flynn Group, BlueFive Capital and Sixth Street Partners, according to the company’s statement.
The company said it formed a committee of independent directors, advised by Morgan Stanley and the law firm Simpson Thacher & Bartlett. It added that there was “no assurance” it would pursue a transaction.
Why the Board Said No
Board chair Art Winkleblack said the independent committee “unanimously concluded that it substantially undervalues Wendy’s standalone prospects and long-term earnings potential,” according to CBS News and Yahoo Finance. He also expressed confidence in CEO Bob Wright.
Peltz wrote in an Oct. 28 letter that Wendy’s was at a “critical juncture” and that “private ownership is the better path,” The Epoch Times reported.
The Poison Pill
The company described the rights plan as limited-duration. It can be triggered if a person or group acquires 15% or more of Wendy’s shares, or if an existing holder at or above that level buys additional shares without board approval, according to the company’s announcement.
Wendy’s said the plan is not meant to block an offer the board considers fair to shareholders. The company also said the Trian-led group declined its request for a customary standstill agreement, The Epoch Times reported.
Weak Results Add Pressure
Wendy’s reported third-quarter results the same day. U.S. same-restaurant sales fell 5.7%, the seventh straight quarterly decline, Yahoo Finance reported. Revenue slipped 0.5% to $547 million, and net income fell nearly 66% to $15.1 million from $44.3 million a year earlier, according to The Epoch Times.
The company blamed fewer customer visits and labor and commodity inflation. Adjusted earnings of $0.13 a share beat the $0.09 analysts expected, Yahoo Finance reported.
CBS News noted that Wendy’s shares fell nearly 14% over the past 12 months. In an August earnings call, Wright acknowledged the chain had “drifted away from some of the standards that made Wendy’s distinctive.”
The Turnaround Plan
Management is betting on a plan called “Dave’s Way.” Yahoo Finance reported it includes thicker, crispier bacon, a richer Frosty and whole-leaf lettuce on sandwiches. Chief Financial Officer Steve Cirulis said the company has the financial capacity to carry it out, The Epoch Times reported.
Yahoo Finance also reported that Meritage Hospitality Group, a franchisee with more than 300 locations, filed for Chapter 11 in September. Wendy’s plans to acquire up to 163 of its restaurants.
What Happens Next
None of the reports reviewed said how Trian’s group responded to the rejection. The company has said it does not plan to share further developments unless appropriate. The board’s decision also does not rule out a revised offer. For broader market context, see our markets coverage on stocks and investor risk.
Watch: Earlier Coverage of the Bid
Video: “Wendy’s Shares Jumps On Peltz Bid News” (YouTube), which covers the initial offer rather than the rejection.
Sources
- CBS News: Wendy’s rejects $1.4 billion hostile takeover bid
- The Epoch Times: Wendy’s Rejects $1.4 Billion Buyout Offer From Nelson Peltz-Led Group
- Yahoo Finance: Wendy’s turned down Nelson Peltz’s $1.4 billion offer
- Wendy’s statement via Franchising.com: Company confirms receipt of unsolicited proposal