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* Deal is for $130 million cash and $190 million in debt
* Wendy's/Arby's to keep 18.5 percent stake in Arby's (Adds Roark comment; updates stock activity)
By Lisa Baertlein and Jessica Wohl
LOS ANGELES/CHICAGO, June 13 (Reuters) - Wendy's/Arby's Group Inc WEN.N will sell most of its Arby's roast beef sandwich chain to private equity firm Roark Capital Group for about $130 million in cash.
The company in January announced plans to sell Arby's, which until recently had some of the worst same-restaurant sales in the industry, and focus on its Wendy's hamburger business. [ID:nNSGE70J0A]
The deal will bulk up the restaurant holdings at Roark, which is based in Wendy's/Arby's hometown of Atlanta.
On Monday, Roark also said it bought privately held Il Fornaio (America) Corp, owner of the upscale Il Fornaio Italian restaurants and the Corner Bakery Cafe, a Panera Bread Co PNRA.O rival. Terms were not disclosed.
Roark, which already owns eateries like Wingstop, Auntie Anne's and Carvel Ice Cream, also will assume about $190 million of Arby's debt.
Wendy's/Arby's will retain an 18.5 percent Arby's stake valued at about $30 million and receive an income tax benefit of about $80 million that it plans to realize over a few years.
Wendy's/Arby's Chief Financial Officer Steve Hare said Wendy's would use proceeds from the sale to pay for kitchen equipment and drive-thru improvements to support breakfast, a new line of bigger hamburgers and other menu additions.
The cash also will help Wendy's speed up the pace of restaurant renovations and the construction of new units in the United States and abroad, he said.
Hare said the company retained a stake in Arby's because it believes in the brand's "long-term potential."
The total value of the deal is essentially in line with expectations, said Sanford Bernstein analyst Sara Senatore.
Roark's previous turnarounds have included Carvel Ice Cream and the Schlotzsky's sandwich chain, said Steve Romaniello, a managing director at Roark. He declined to comment on the Arby's deal.
At Carvel, store renovations were a priority, Romaniello said. At Schlotzsky's, the firm enhanced an existing turnaround strategy with franchisee support and other efforts, he said.
Now the firm must put that know-how into revitalizing Arby's as it competes against other chains that sell sandwiches in brighter, updated locations.
Senatore said Roark's brand portfolio suggests it is not afraid to get its hands dirty with more mature brands.
"If anybody can do it they probably can, but it's not an easy task to turn around Arby's," said Senatore.
Roark also committed, under certain circumstances, to invest an additional $50 million in Arby's through 2013 in return for preferred stock.
Shares of Wendy's/Arby's closed up 0.9 percent at $4.56.
As of April 3, the company had 6,565 Wendy's restaurants and 3,631 Arby's restaurants. Most of the units are in the United States.
Wendy's/Arby's, the third-biggest U.S. fast-food restaurant operator, has been grappling with rising costs of commodities like beef, bacon and dairy products as well as competition from rivals like McDonald's Corp (MCD.N) and Yum Brands Inc (YUM.N), which have more international exposure.
Wendy's and Arby's were combined in 2008 when billionaire investor Nelson Peltz's Triarc Cos, then Arby's parent, bought Wendy's for $2.2 billion to create the world's third-largest publicly held fast-food chain.
Arby's generated roughly one-third of company sales, but its operating losses were a drag on overall results.
But during the first quarter, Arby's turned in stronger sales than did Wendy's as turnaround efforts took hold.
Sales at Arby's North American restaurants open at least 15 months were up 5.5 percent, versus the flat result at Wendy's. Executives attributed the rise to the chain's new value menu, its new "Good Mood Food" branding and the successful Angus Three Cheese and Bacon Sandwich.
Arby's President Hala Moddelmog will remain in that role at the new company, Hare said.
Wendy's/Arby's expects to close the sale early in the third quarter, subject to regulatory approvals and closing conditions. Adjustments to the purchase price, based primarily on net working capital, could occur after the closing.
UBS Investment Bank UBSN.VX(UBS.N) acted as financial adviser to Wendy's/Arby's, and Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser. King & Spalding LLP and DLA Piper LLP were Roark's legal advisers. (Additional reporting by Arpita Mukherjee in Bangalore; Editing by Don Sebastian, Steve Orlofsky and Carol Bishopric)