Home > Stock Analysis

Will Wendy's Hold Out For A Better Suitor?

Posted: Nov 16, 2007 15:15 PM by Glenn Curtis

Tickers in this Article: TRY, BKC, WEN

Billionaire Nelson Peltz and his Investment company Triarc (NYSE:TRY) have long been rumored as potential suitors for a buyout of burger chain Wendy's (NYSE:WEN). The feeling was that under the right conditions Triarc would offer between $37 and $41 a share.

Get Free Stock Analysis By Email

However, when Peltz finally extended an offer for the company earlier this week, it was lower than the expected range, according to a story by Reuters. To be clear, a specific price and/or terms of the bid were not publicly disclosed. Not surprisingly, Wendy's stock, which had been trading up to $35 per share last month, has sold off on the news. (To read the full news article, see "Triarc made offer to buy Wendy's - filing".)

What Does The Offer Mean for Shareholders?
OK, so where do I begin? First off, it’s important to realize that there is both good and bad in this news. On the positive side, if the outstanding bid is in fact below the $37 to $41 range, other potential suitors might be inclined to come in and bid on the company. In addition, Wendy's will still have the option if it wants to continue to try to drive growth on its own and to potentially fetch a higher price for itself down the line. After all, it does have several newer products, such as the "Baconator" burger, that could potentially drive same store sales, as well as the share price, going forward.

On the flip side, there is no guarantee that Wendy's or its investors will get another offer. Even if it does, there's no guarantee that it will be in the range of $40 a share as was hoped by many. Finally, the health of the credit markets could make funding this deal quite tough as well.

Beware the Whopper
Keep in mind, some things have changed over the last few months. The credit markets have seriously tightened and lenders and investors are less willing to make loans. Another problem could come from Burger King (NYSE:BKC).

The home of the Whopper is gaining momentum. In its first fiscal quarter it posted earnings growth of 23% and same-store-sales growth of 5.9%. In short, this could present a problem for Wendy's which has been trying to make news and garner foot traffic with its new menu items. In any case, Peltz is most likely aware of the competitive scene and I think this could be just one more reason he and Triarc have offered a low-ball bid.

The Bottom Line
Triarc has made a bid for Wendy's. However, while the terms of the bid have not been made public, news reports suggest that it is less than the $37 to $41 per share that many had expected.

With that in mind, my hunch is that another suitor, specifically one of its franchisees, might make a counter offer. However, there is no guarantee that will, and because of this uncertainty and the apparent surge by Burger King in the fast food space, I am leery of this stock's chances for moving much higher.

To learn more, check out The Wacky World Of M&As

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS