Wendy's agrees to sell Arby's to equity firm

The marriage of square burgers and roast beef sandwiches is about to end.

Wendy's/Arby's Group Inc said Monday that it will sell a majority stake in its struggling Arby's brand to Roark Capital Group, the Atlanta private equity firm. The move marks the end of a short-lived union between the two fast-food chains, and represents a role reversal. Arby's started as the suitor in the relationship, and ended up on the chopping block.

In an interview with the Associated Press, Wendy's/Arby's Group CEO Roland Smith said that the 2008 combination of the two fast-food chains had "absolutely not" been a failure.

"I think that at the time we put the two brands together it was the exact right thing to do," Smith said, "but any business that continues to do well and perform has to be nimble and adapt to what the market is."

Wendy's/Arby's shares rose 14 cents, or three per cent, to US$4.66 in late-morning trading, as investors signalled their pleasure with having more clarity about the company's future. But the shares remain well below US$5.90, their price on the day the combination was announced in September 2008.

Roark, which already owns Moe's Southwest Grill, Cinnabon and other restaurants, will pay US$130 million in cash for an 81.5 per cent stake in Arby's. It also will assume US$190 million worth of Arby's debt.

Roark also announced Monday that it bought Il Fornaio (America) Corp, owner of the Corner Bakery Cafe and Il Fornaio Restaurants and Bakeries.

Smith said Wendy's decision to keep an 18.5 per cent stake in Arby's should signal its confidence in Arby's future.

Smith served as CEO of Arby's Inc from 1997 to 1999 and again starting in 2007. He has been CEO of the combined Wendy's and Arby's since it was formed, and he said Monday that selling Arby's was "a little bittersweet" but best for both brands.

Smith should receive a cash bonus of US$350,000 when the sale goes through, and general counsel Nils Okeson should receive a bonus of US$100,000, according to regulatory filings. The company said the bonuses are "in recognition of their efforts in successfully completing the sale."

Wendy's/Arby's will change its name after the sale is completed. Spokesman Bob Bertini said the company is considering options and the new name will include the word 'Wendy's'.

Wendy's/Arby's Group will get a tax benefit worth US$80 million related to the sale.

The company tallied the value of the deal at $430 million, including the cash payment, the assumed debt, the tax benefit and the 18.5 per cent stake, worth around US$30 million.

Wendy's and Arby's came together when billionaire investor Nelson Peltz and his investment firm, which already owned Arby's, agreed to scoop up Wendy's. A well-known and prolific investor, Peltz has made both friends and enemies by buying and reviving struggling companies such as Snapple.

Peltz's firm, Trian Fund Management, is Wendy's/Arby's largest shareholder with a stake of about 17 per cent, according to estimates by FactSet. That's worth about US$357 million when calculated by Monday morning's stock price. Peltz is the fourth-largest shareholder with a stake of about 4 per cent, worth about US$76 million.

Wendy's has 6,600 restaurants and Arby's 3,600.

Together, Wendy's and Arby's make the No. 2 chain restaurant by US revenue, behind McDonald's, according to Technomic, a food industry research firm. Counted separately, Wendy's falls behind Subway, Starbucks and Burger King to No. 5; Arby's is No. 16.

The sale is expected to close in the third quarter, which starts in July.