Wendy's/Arby's Group Inc. (WEN) agreed, on Monday, to sell the majority of Arby's for $130 million in cash. The purchaser is a consortium that is led by Roark Capital Group, a private-equity firm that owns other restaurant food-related holdings such as Carvel Ice Cream & Cinnabon. The new Wendy’s will retain an 18.5% stake in Arby's. Wendy's/Arby's will drop Arby's from its name when the deal closes, but did not indicate what the new name will be.
Arby's has suffered years of declining market share, which was only exacerbated by the recent economic crisis. The primary issue appears to be that Arby’s maintained an expensive menu, focused on its signature roast beef sandwiches. Compared to its competitors, Arby’s had the highest average cost for food in the fast food business, and many customers sought out dollar menus elsewhere. In the meanwhile, McDonalds (MCD) and the Yum! Brands (YUM) restaurants such as KFC and Taco Bell have focused upon providing additional value options, and focusing on international growth.
Nelson Peltz, chairman of Wendy's/Arby's and CEO of Trian Fund Management LP, which owns a 17.83% stake in WEN, has a reputation as an activist investor in food companies. In particular, he is known for pushing companies to detach themselves from their underperforming brands and focus on their key brands. The sale of Arby’s has been anticipated since Mr. Peltz assumed the role of chairman, and in January, the company said it was exploring options for Arby's, including a sale.
Nonetheless, it is believed that the company will now focus upon growth of its Wendy’s business internationally, as Wendy’s already has a competitive value menu. The business has been range-bound for the past 2 years and presently trades below book value. Chairman Peltz clearly believes that Wendy’s can climb now that it has been released from Arby’s, and this strategy appears to be textbook Peltz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.