Two big banks shunning Peltz's Wendy's bid: sources

NEW YORK (Reuters) - Citigroup (C.N) and Merrill Lynch MER.N are unlikely to fund Nelson Peltz's bid for Wendy's International Inc. (WEN.N), according to sources, adding another challenge to the attempted sale of the company.

Citigroup and Merrill were expected to commit to Peltz's bid but elected instead to sit on the sidelines, sources say. Peltz's Triarc Companies Inc TRY.N is trying to buy the struggling hamburger chain as the auction for the company nears its final stages.

The decision by the banks to take a pass on Triarc's offer underscores the impact that the subprime mortgage meltdown and subsequent credit crunch has had on Wall Street banks, which in prior months jumped at the chance to fund buyouts.

Triarc, parent of the Arby's fast-food chain, still has at least two banks backing its offer, Deutsche Bank (DBKGn.DE) and Royal Bank of Scotland (RBS.L) -- two banks originally on the fringes of the deal, sources say.

Wendy's, with a market capitalization of $2.4 billion, said it was exploring strategic alternatives back in April.

A spokesman for Peltz declined to comment. Wendy's was not available for comment. Representatives at all banks declined to comment.

Other banks also appear to be willing to fill in for Citi and Merrill, sources say, as the Wendy's sale process winds down. Citigroup may, in the end, decide to back Peltz, sources say.

The auction is a prime example of how the subprime collapse and the credit crunch has hurt the deal environment and several large investment banks.

Citigroup and Merrill Lynch were involved in several large deals in the last few years and were major lenders to private equity firms in the leveraged buyout boom. But both banks were hit by massive write-downs last quarter, which limited their lending desks' ability to loan money to activists such as Peltz and private equity buyers on the hunt for deals.

Deutsche Bank and RBS have been able to step into deals like Wendy's while larger banks are still trying to sort through hung loans and subprime headaches.

In an added sign of the credit crunch's impact, JPMorgan Chase & Co (JPM.N). and Lehman Brothers LEH.N, the banks running the process, are not providing staple financing, sources say. During the days of the buyout boom before the credit crunch, nearly all deals came with staple financing, meaning the advisers had debt financing in place already, with a minimum purchase price set on a cash flow multiple.

Peltz has pushed for a shake-up at Wendy's since last year, with his fund Trian Fund Management owning a 9.8 percent stake in the company. Triarc, his restaurant company, has been in ongoing discussions to buy Wendy's. But the auction has so far failed to find a successful bidder willing to pay what Wendy's is hoping for.

Private equity firms Thomas H. Lee Partners and Oak Hill Partners and Wendy's franchisee David Karam have all expressed interest in the company, sources have said, but none appear to be moving ahead with an aggressive bid.

It is unclear, which, if any of the bidders are still actively engaged in the auction aside from Triarc.

(Additional reporting by Jessica Hall; Editing by Gary Hill)