Wendy's, franchisor of Arby's agree to merge

by Jeff Gelski
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ATLANTA — A definitive merger agreement between Wendy’s International, Inc. and Triarc Cos. Inc., the franchisor of the Arby’s restaurant system, will create the United States’ third-largest quick-service restaurant company, the companies said April 24.

The boards of directors of both companies approved the agreement. Triarc will change its corporate name post-merger to include the name Wendy’s. The combined systems will have about 10,000 restaurant units and pro forma annual system sales of about $12.5 billion. The new company expects to pursue day-part expansion, primarily focused on breakfast. Other areas of focus include global expansion for both brands and growth through future acquisitions and new developments.

Roland Smith, Triarc’s chief executive officer, will continue in that role for the combined company and become c.e.o. of the Wendy’s brand.

The transaction, expected to close in the second half of 2008, requires the approval of Triarc and Wendy’s shareholders. Nelson Peltz, Triarc’s chairman, and Peter May, Triarc’s vice-chairman, together own shares representing about 35% of the voting power of Triarc’s outstanding stock. Mr. Peltz and Mr. May plan to vote their shares in favor of the transaction.

Mr. Peltz, Mr. May and Edward P. Garden own the Trian Partners investment management firm, which has beneficial ownership of 9.8% of Wendy’s stock, making it the largest shareholder of Wendy’s. Trian Partners also plans to vote its shares in favor of the transaction.

Under the agreement, Wendy’s shareholders will receive a fixed ratio of 4.25 shares of Triarc Class A Common Stock for each share of Wendy’s common stock they own. Wendy’s will nominate two directors to Triarc’s board of directors, which will be reconstituted and have 12 members.

"We believe this transaction with Triarc is in the best interests of all Wendy’s constituencies and represents superior value to what the board anticipates Wendy’s would have generated as an independent company," said James V. Pickett, Wendy’s chairman.

Triarc’s shareholders will be asked to approve a charter amendment pursuant to which each share of Triarc’s Class B Common Stock, Series 1 will be converted into one share of its Class A Common Stock, which will result in a post-merger company with a single class of common stock.

"We believe the combination of Arby’s and Wendy’s will create a powerful new restaurant company and a ‘must own’ restaurant stock with significant upside potential as we execute on the many opportunities we see to expand and improve these two very valuable brands," Mr. Smith said. "Working together with the Wendy’s team, we expect to improve margins significantly at Wendy’s company-owned stores. We also expect to drive significant synergies and improve efficiency, resulting in substantial annual savings for our combined organization.

Arby’s and Wendy’s will operate as autonomous brand units. Wendy’s International, Inc., which has more than 6,600 Wendy’s restaurants in the United States, Canada and international markets, will keep its headquarters in Dublin. Shares of Wendy’s International, Inc. opened at $24.46 per share on the New York Stock Exchange on April 24 and were trading at $25.26 per share by mid-morning.

Through its subsidiaries, Triarc, a holding company, is the franchisor of the Arby’s restaurant system, which included about 3,700 restaurants on Dec. 30, 2007. Subsidiaries owned 1,106 of the restaurants. Shares of Triarc Cos. Inc. opened at $6 on the N.Y.S.E. on April 24 and were trading at $6.19 by mid-morning.

An Atlanta-based consolidated support center for the new combined company will oversee all public company responsibilities and other central service functions.

Planned operating improvements at Wendy’s company-owned stores are estimated to generate about $100 million of annual incremental operating profit over time through improved costs associated with food, labor and general operating expenses. The elimination of duplicate corporate functions and the streamlining of support services is expected to recued overhead savings at an annual run rate of about $60 million over time.

The transaction is subject to regulatory approvals and customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

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