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ATLANTA (Blue MauMau) – Wendy's International board of directors announced its approval of a $2.3 billion acquisition by Triarc Companies, Inc., an equity fund firm and the holding company of the Arby's restaurant chain. The combined systems of Arby's and Wendy's will have approximately 10,000 restaurant units and annual system-wide sales of $12.5 billion, positioning it as the nation's third largest quick service restaurant company.
Triarc's chairman, Nelson Peltz, began pressuring the No. 3 hamburger chain for change last April. Several bids for the company followed. Regarding the lengthy and uncertain bidding process, Wendy's Chairman James Pickett says, "Wendy's directors deeply appreciate the patience and dedication of our shareholders, franchisees and employees during a long process. Wendy's needs stability and bringing closure will enable our employees and franchisees to focus solely on the business and customers."
Roland Smith, 53, Triarc's Chief Executive Officer, will become Chief Executive Officer of the Wendy's brand, while also remaining CEO of Triarc. He will replace Ms. Kerii Anderson, who was promoted from CFO to CEO in 2006.
In regards to the short-term of outgoing CEO Anderson, Morningstar analyst John Owens observes, "The trends weren't in Kerii Anderson's favor. Wendy's just wasn't keeping up with McDonald's and Burger King."
The soon-to-be CEO of Wendy's will maintain Wendy's and Arby's separate brand identity while consolidating certain services from the two firms. Terminations are expected. Smith declares, "We are committed to operating as a highly focused organization and to fully realize the many operating and strategic opportunities we will have as a result of bringing Arby's and Wendy's together, while at the same time maintaining the strong identity and integrity of both brands."
Need for Franchisee Support
Wendy's has had problems convincing its franchise owners to carry out corporate initiatives in the past. Analyst Owens says, "Operational standards had slipped and there was a lack of break-through products. Wendy's was late for breakfast. It looked like they were having trouble convincing franchisees about the merits of breakfast. Only a few hundred franchisees decided to offer breakfast, despite corporate's strong efforts to launch a breakfast program system-wide."
The incoming CEO wants to change that.
Smith told the Atlanta Business Chronicle that it was critical for Wendy's to learn from its franchise owners. "Wendy's franchisees are outperforming company stores… We need to be able to operate restaurants from both a customer service and a bottom line profit perspective."
Triarc has a history of not just lifting a firm's value but also of seeing things from a franchise perspective. The firm bought out RTM Restaurant Group, Arby's largest franchisee of some 775 restaurants in 2005. Smith claims this helped Triarc learn a level of operational efficiency that is seen only among franchisees.
Morningstar's Owens states, "It is difficult for a restaurant chain to turn itself around without the support of franchisees."
Smith seems to agree. He has put effort into reaching Wendy's franchise owners fairly quickly. Within a day, he had attempted to contact franchise owners and key shareholders, family of the late-founder Dave Thomas. "He contacted us shortly after the acquisition," says Mr. Joe Johal, the president of an independent group of Wendy's franchise owners, the Old Fashion Franchise Association.
Geoff Bailey, president of The Bailey Company, L.L.L.P., a franchise owner of some 58 Arby's restaurants in Colorado, Wyoming and Idaho, declares, "Nelson Peltz and Peter May [Chairman and Vice Chairman of Triarc] are the best owners that the Arby's system has had. And we've had a few. They've put money where their mouth is. They are money men who look to find latent value in the brand."
In regards to the acquisition, Bailey reassures Wendy's franchise owners, "Change always makes us a little anxious. I don't think Nelson and Peter will say it is time to put hamburgers in Arby's or sliced roast beef into Wendy's. To have two strong horses in the same stable is a good thing because we can actively compete for the best outcome."
Triarc will add Wendy's to its company name after the acquisition is complete.