Wendy's to consider sale
by Jessica Hall
PHILADELPHIA (Reuters) - Hamburger chain Wendy's International Inc. (WEN.N: Quote, Profile, Research) on Monday slashed its 2007 earnings forecast and said it would explore a possible sale of the company instead of other restructuring options.
Wendy's had said in April it would weigh options to boost strategic value, including a possible sale. The latest announcement shows that the fast-food chain sees a sale as a more likely option.
"We believe recent sales and profit trends may have diminished board faith in the current strategy, and seem to have heightened resolve to sell the company," said David Palmer, an analyst with UBS Equity Research.
Shares of Wendy's, which has a market capitalization of about $3.5 billion, fell 3.2 percent. Wendy's stock had surged in April after the fast-food chain first said it was exploring a sale. Since then, the stock has risen about 20 percent.
The operator of the No. 3 U.S. hamburger chain cut its 2007 earnings forecast to a range of $1.09 to $1.23 a share, down from previous guidance of $1.26 to $1.32 a share. It cited lower-than-expected same-store sales and higher commodity costs for the reduced outlook.
For the first quarter, same-store sales rose 3.8 percent in the United States at company-operated restaurants, and rose 0.7 percent in the second quarter through June 15, Wendy's said.
Wendy's said the past two months had been challenging and it adjusted its pricing to bring its products in line with rivals such as McDonald's Corp. (MCD.N: Quote, Profile, Research).
The new pricing strategy has hurt Wendy's short-term performance, but should generate more positive operating margins over the long-term, the company said.
LONG-TERM OUTLOOK SUSPENDED
Due to the potential sale of the company, Wendy's suspended its earnings outlook for 2008 and 2009.
Despite the weak fundamental performance at Wendy's, a private equity buyer could still squeeze value out of the chain by recapitalizing the debt, refranchising more company-owned restaurants and reinvigorate the brand through improved marketing, UBS's Palmer said.
Currently about 22 percent of Wendy's 9,900 restaurants are operated by the company, while 78 percent are run by franchisees, Palmer said.
Last month, Wendy's hired JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research) and Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research) as its financial advisers for a possible deal.
"Our goal is to move forward expeditiously," said Wendy's Chairman James Pickett.
The special committee of the board is also weighing a possible securitization financing, which could be used by the potential buyer or in a recapitalization of the company.
Highfields Capital Management, which owns 8.5 percent of Wendy's, last month urged the fast-food chain to sell itself to the highest bidder, according to media reports. Last year, Wendy's succumbed to pressure from billionaire investor Nelson Peltz to shed its secondary brands.
Wendy's Chief Executive Kerrii Anderson told analysts in April that the move to consider a strategic review or sale was driven by the board and was not her decision. Three of Wendy's board members were nominated by Peltz.
Wendy's is just one of several food companies on the block. Bar-and-grill chain Applebee's International Inc. (APPB.O: Quote, Profile, Research) said in February that it was exploring a potential sale. Last week, shares of Applebee's rose amid media reports that pancake-house chain IHOP Corp. (IHP.N: Quote, Profile, Research) had bid for the company.
Shares of Wendy's dropped $1.26 to $38.47 in afternoon trading on the New York Stock Exchange.
source : © Reuters 2007. All rights reserved.
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