Wendy's Merges With Triarc

$2.3 Billion Deal Would Form the Third-Largest Fast-Food Chain

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CHICAGO (AdAge.com) -- After a year of posturing, insinuating and even brawling, Wendy's has signed a definitive merger agreement with Nelson Peltz' Triarc Cos. in an all-stock deal valued at $2.3 billion.

As part of the merger, Triarc CEO Roland Smith will take over as CEO of Wendy's. There was no word as to the fate of Wendy's current CEO, Kerrii Anderson. The merger would make Triarc a $12.5 billion company with 10,000 restaurants, the third largest in the quick-service category behind McDonald's and Yum Brands. Triarc also owns Arby's.

"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 in a statement.

Two separate units
Wendy's and Arby's will continue to function as two separate business units, with headquarters in Dublin, Ohio, and Atlanta, respectively. According to a joint statement, the new company will pursue daypart expansion focused on breakfast, global expansion for both brands, growth through future acquisitions and new unit development.

"Working together with the Wendy's team, we expect to improve margins significantly at Wendy's company-owned stores," Mr. Smith said. "We also expect to drive significant synergies and improve efficiency, resulting in substantial annual savings for our combined organization. Through the execution of major operating improvements and the realization of synergies, we expect to generate substantial value for shareholders."

Last week, Triarc announced that Wendy's had rejected two acquisition offers. His Triarc Cos. and Trian Fund Management had proposed combining Wendy's and Arby's, as well as purchasing Wendy's outright for $900 million in cash and stock. Mr. Peltz, a food mogul and activist shareholder, then called for a meeting of the board of directors. With a 10% stake in the company before the merger, Mr. Peltz stepped down from the board last year to avoid conflicts involved in a possible purchase. Last summer, Mr. Peltz's companies indicated willingness to pay $37 to $41 per share, but lowered the price last fall.

New way of doing things
The burger chain formed a special committee to decide the company's fate last year, and released a statement in January that the decision was nearly complete. For a relatively young chain with a number of original Wendy's franchisees and investors still intimately connected with the business, an all-new Peltz way of doing things could prove hard to swallow.

"It's good news that we're finally getting past what we were going through with the uncertainty," said one franchisee. "I'm not comfortable that this is where we wanted to end up, and I think a lot of it is we're essentially dealing with a lot of people who are unknown to us."

But Mr. Peltz has made a business out of streamlining bloated, underperforming food companies, UBS analyst David Palmer noted in a report. The investor acquired his Wendy's stake in 2005, and quickly pressed the chain to sell off ancillary businesses Tim Hortons and Baja Fresh, at a steep loss.

Since the 2002 passing of founder Dave Thomas, Wendy's has struggled to keep up with competitors in sales and menu innovation.

"They really have gone from being an innovator and leader, being able to use Dave Thomas as a marketer, to being a follower," said Darren Tristano, exec VP of Technomic. "Now they're adding breakfast, adding coffee, and a wrap. They've been trying to keep up versus leading the way, and if this is the kind of kick in the pants to become the innovator that we've known them for in the past, then I'd like to see that happen."

Ad impact
What the merger will mean for advertising remains very uncertain.

When Mr. Thomas passed away, the chain tried new tactics including the unpopular "Mr. Wendy" campaign. Last year, the chain moved its $435 million advertising account to Publicis Groupe's Saatchi & Saatchi, which gave them the popular but polarizing "red wig" campaign. In January, the chain moved the bulk of its business again, to MDC Partners' Kirshenbaum Bond & Partners. The resulting campaign, "It's waaaay better than fast food," appears to be gaining some traction, although results are very preliminary.

The deal is expected to close in the second half of 2008.
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