Arby's restaurant chain put up for sale

LOS ANGELES Thu Jan 20, 2011 3:24pm EST

A combined Wendy's/Arby's sign is shown near a restaurant in Fontana, California January 6, 2009. REUTERS/Lisa Baertlein

A combined Wendy's/Arby's sign is shown near a restaurant in Fontana, California January 6, 2009.

Credit: Reuters/Lisa Baertlein

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LOS ANGELES (Reuters) - Wendy's/Arby's Group WEN.N plans to sell its struggling Arby's roast beef sandwich chain to focus on the Wendy's hamburger business, undoing a 2008 deal engineered by billionaire investor Nelson Peltz.

The move comes as improving credit trends, a slowly healing U.S. economy and private equity firms' appetite for deals are spurring some restaurant operators to put all or parts of their companies on the block.

Wendy's shares were up 8.7 percent to $4.86 in afternoon trade Thursday on the New York Stock Exchange, giving the combined company a market value of just over $2 billion.

The two fast-food chains were combined when Peltz's Triarc Cos, Arby's parent, bought Wendy's for $2.2 billion to create the world's third-largest publicly held fast-food chain. Nearly all its restaurants are in the United States.

Arby's generated about 30 percent of the company's sales in its third quarter, but its performance -- among the industry's worst -- has been a drag on the overall company results.

Arby's was late to offer a value menu and lacks the international exposure that has helped top fast-food chains like McDonald's Corp (MCD.N) and Yum Brands Inc (YUM.N) grow despite the U.S. economic downturn.

Analysts said Arby's could be a tough sell. It is still in need of a turnaround and it might be hard to find another restaurant operator willing to buy it.

"Not to say that there is not a potential private equity buyer, but it may be that Arby's winds up being sold to its franchisees, in a deal that may have to be partly financed by the company," Roth Capital Partners analyst Tony Brenner said in a note to clients.

A sale could bring in $400 million to $600 million, Oppenheimer analyst Matthew DiFrisco said in a client note.

COSTLY ROAST BEEF

Arby's was in decline and suffering from neglect before its merger with Wendy's.

Its signature sandwiches traditionally have sold at higher prices than offerings from other popular fast-food chains -- which became a big minus when the U.S. economy went sour. Last year, it rolled out a $1 menu to compete with rivals.

The unit -- which operates 3,700 restaurants and had total third quarter revenues of $260.5 million -- is heavily dependent on business from young males, who have been hard hit by massive job losses in construction and manufacturing.

Wendy's and Arby's are both trailing McDonald's, which has used its large size, Dollar Menu and new beverages like lattes to draw a wide range of customers and pummel rivals.

Arby's has posted roughly four years of declines in key sales at established North American restaurants, DiFrisco said.

Wendy's/Arby's said shedding Arby's would allow it to focus on Wendy's -- perhaps best known for its popular "Where's the beef?" ads from the 1980s.

Some, like Gimme Credit senior high yield analyst Vicki Bryan, cheered the decision.

"It's about time -- the relentless decline of the long struggling brand has not been reversed by the recycled strategies and numerous management changes over the past last decade," Bryan said in a client note.

"Arby's has been the noose around this company's neck," said Tim Ghriskey, chief investment officer with Solaris Asset Management, which sold more than 1 million Wendy's/Arby's shares last fall after tiring of waiting for it to sell Arby's.

FOCUS ON BURGERS

Peltz, the company's chairman and largest shareholder, said in a statement that Wendy's is the fast food company's "key driver of momentum." His Trian Fund Management LP owns 18.3 percent of Wendy's/Arby's shares, Thomson Reuters data shows.

Peltz said in June that an unnamed party had expressed interest in a deal involving Wendy's/Arby's. In November, Wendy's asked Peltz to make a quick decision on the takeover inquiry so the company could resume share buybacks.

It was not clear if that inquiry is related to Thursday's announcement.

In September, Burger King agreed to sell itself to investment firm 3G Capital for $3.26 billion.

That deal, which came at a premium of nearly 50 percent to the hamburger chain's share price before news broke, helped stoke interest in restaurant mergers and acquisitions.

Earlier this week, Yum Brands Inc (YUM.N) put its Long John Silver's and A&W All-American Food Restaurants up for sale to focus on expanding its KFC and Pizza Hut chains in China and other international markets.

"There might be a little snowball effect (from the Burger King deal), but there might just be a realization that there may not be that much to be gained by waiting," said George Van Horn, senior analyst at Los Angeles-based industry research firm IBISWorld.

Wendy's/Arby's said UBS Investment is assisting in the sales process. The company also said it would issue preliminary fourth-quarter results on January 26.

(Additional by Phil Wahba in New York, Ben Klayman in Detroit and Nivedita Bhattacharjee in Bangalore; Editing by Derek Caney, Tim Dobbyn, Gary Hill)

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Comments (4)
Skylor wrote:
Well there goes the few semi ok fast food places. Guess $1 items wasn’t cheap enough.

Jan 20, 2011 9:16am EST  --  Report as abuse
pbug wrote:
It’s hard to make money with a fast food chain if customers can’t find any locations to go to. We used to have an Arby’s about 10 miles away; now the nearest one is about 40 miles. And when we went to that one we had to put up with an icy parking lot, and cleanser smell everywhere.

Where I live in NW Suffolk County Long Island, we have a very poor choice of fast food chains. Wendy’s has lost most of our business because they no longer have any (IMHO) edible salads and never keep selling items I like, and we have to choose from McD (chemical nuggets), BK, Pizza Hut Express (3 or so types of micro pizza only), KFC (now very expensive) and Taco Hell. The one Long John Silver in driving distance (10 – 15 miles) has only a small part of the LJS menu, which means we hardly ever go there. That plus a staff that frequently does not include anyone who speaks English.

Have any of these chains ever considered getting professional management and marketing? And workers who were here long enough to speak English (and maybe had Green Cards)?

Jan 20, 2011 10:41am EST  --  Report as abuse
uc8tcme wrote:
They are now learning what the auto industry is going through, do not merger or buy a company within our own industry – Why? Deverstify your holdings. Why would Wendy’s buy a struggling Arby’s – to make more sandwiches? You’re can only eat so much fast food in a day. Stick to what you know and focus on that and make it better (I thought that is what “thinking outside the box” was all about). Wendy’s carrying that dead weight of two years is long enough.

Jan 20, 2011 12:39pm EST  --  Report as abuse
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