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May 24, 2022

Wendy's jumps after Trian says it’s exploring a transaction

Activist investor exploring possible takeover of Wendy's

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Wendy’s Co. surged in trading after shareholder Trian Fund Management, the investment vehicle of billionaire Nelson Peltz, said it will explore a transaction that could give it control of the fast-food chain. 

Trian and its affiliates own about 19.2 per cent of Wendy’s stock, according to a Tuesday filing. A transaction “could include an acquisition, business combination (such as a merger, consolidation, tender offer or similar transaction) or other transaction,” Trian said in the filing. Peltz, who currently serves as chairman of Wendy’s, has been a longstanding shareholder.

Wendy’s shares rose 9.4 per cent at 9:57 a.m. in New York. The stock had declined by 32 per cent this year through Tuesday’s close.

In a statement, Dublin, Ohio-based Wendy’s said its board “will carefully review any proposal” submitted by Trian.

Citigroup Inc. analyst Jon Tower said he isn’t surprised that Wendy’s biggest shareholder “is making noise” because the stock has been lagging behind peers for years.

“Keep in mind, this is a similar ownership group that acquired the brand in 2008 and has served on the board throughout the company’s history,” Tower said in a note to clients.

Wendy’s shares are trading at about 20 times this year’s estimated earnings, compared with 25 for McDonald’s Corp. and 24 for Yum! Brands Inc., according to data compiled by Bloomberg.

 

INFLATION HIT 

Fast-food chains are facing more pressure amid staggering inflation as consumers start to tighten their budgets. Larger restaurant companies that are more diversified may be more insulated from pressures for one commodity, such as beef, which Wendy’s called out on its latest earnings call. Additionally, legacy brands have started looking at smaller concepts for growth potential. Yum, for example, acquired Habit Burger.

Peltz’s tenure at Wendy’s dates back to 2006, when Trian was awarded three seats on the fast-food chain’s board. At the time of the settlement, Wendy’s also agreed to spin off its Tim Hortons chain and explore alternatives for its Baja Fresh business, which was later sold.

Peltz’s Triarc Cos. agreed to buy Wendy’s in 2008 to combine it with Arby’s, and Trian remains the company’s largest holder. Arby’s was later sold in 2011. Peltz has been chairman of the company since 2008 while his partner, Peter May, is vice chairman. 

Trian, which was founded by Peltz, May, and Ed Garden, has since gone on to agitate for changes at companies ranging from Procter & Gamble Co., PepsiCo Inc., DuPont and Sysco. It most recently was awarded seats on the board of Janus Henderson Group Plc, where it hopes to revive the faded mutual fund company.

Trian’s results have been varied, with its troubled investment in General Electric Co. being the largest outlier, where total shareholder returns are down about 57 per cent since its initial stake was announced in June 2015. Overall, its campaigns have seen an average return of about 48 per cent, with an average hold time of about three years, according to data compiled by Bloomberg.