Wendy's/Arby's Group Inc. said Monday, June 13, 2011, it has agreed to sell a majority stake in its struggling Arby's brand to a private equity group. (Original Arby's Sign uploaded to Flickr by user army.arch)By CHRISTINA REXRODE, AP Business Writer
NEW YORK (AP) — The marriage of square burgers and roast beef sandwiches is about to end.
Wendy's/Arby's Group 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 combination of the two fast-food chains in 2008 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 19 cents, or 4 percent, to $4.71 in morning trading.
Roark, which already owns Moe's Southwest Grill, Cinnabon and other restaurants, will pay $130 million in cash for an 81.5 percent stake in Arby's. It will also assume $190 million worth of Arby's debt.
Arby's buyer is no stranger to restaurants
THE BUYER
: Roark Capital Group, an Atlanta-based private equity firm.
THE DEAL: Roark announced Monday that it plans to buy a majority stake in fast-food chain Arby's for about $130 million. It is also assuming $190 million in Arby's debt.
ITS PROFILE: Roark largely focuses its investments on restaurants, specialty retail, waste management, and marketing services. It already owns McAlister's Deli, Moe's Southwest Grill, Carvel Ice Cream, Cinnabon and the Schlotzsky's sandwich chain, as well as other companies including FastSigns and BatteriesPlus. Last year it added Wingstop Restaurants, Bosley's Pet Food Plus, Auntie Anne's soft pretzels and Atkins Nutritional Holdings, the company behind the low-carb Atkins diet, to its portfolio.
ITS STRATEGY: Roark focuses on companies with revenue of $20 million to $1 billion. It often invests when a company decides to go private, when a family decides to sell a business, or when corporations sell a unit.
ITS PLANS: Managing partner Neal Aronson said in a statement Monday that Roark looks forward "to working with Arby's President Hala Moddelmog and the dedicated employees and franchisees to help this great brand achieve its full potential."
ITS NAME: The firm is named for Howard Roark, the protagonist in Ayn Rand's free-market manifesto "The Fountainhead."
Smith said Wendy's/Arby's had entertained offers from "quite a number" of bidders, but declined to give details. He said that the company's decision to keep an 18.5 percent stake in Arby's should signal its confidence in Arby's future.
Smith is a veteran of the Arby's side, having served as CEO of Arby's Inc. from 1997 to 1999 and again starting in 2006. He has been CEO of the combined Wendy's and Arby's since it was formed in September 2008. He said that selling Arby's was "a little bittersweet."
Smith will receive a cash bonus of $350,000 when the sale goes through, and general counsel Nils Okeson will receive a bonus of $100,000, according to regulatory filings.
Smith said in the interview that he didn't think employees would be bothered by the bonuses.
"I would say that the folks in our company understand clearly how compensation works, and it is a very typical (bonus) that would come up any time we go through a change in our organization," he said. "I quite honestly don't think anyone's going to focus on it."
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 also get a tax benefit worth $80 million related to the sale, which Bertini described as an "offset to taxable income."
Wendy's and Arby's first came together when billionaire investor Nelson Peltz and his Triarc hedge fund, which already owned Arby's, agreed to scoop up Wendy's as well. Peltz remains involved as the company's chairman. Smith said Peltz is "a tough taskmaster, but he's fair," and said they have a "very, very solid relationship."
Atlanta-based Wendy's/Arby's Group has struggled since its formation in late 2008, the depths of the recession, losing money for seven of its 10 quarters. In January, the company said it would consider selling Arby's in order to focus on Wendy's, which it hopes to expand by launching breakfast in more locations and by opening more restaurants overseas.
Wendy's has about twice as many restaurants — 6,500 to Arby's 3,600 — and represents about 70 percent of the company's revenue. However, in the first quarter, Arby's seemed like the stronger player by some measures. Its revenue rose by 5 percent, while Wendy's revenue fell less than 1 percent, though some of Arby's performance was likely due to sale prices.
The sale is expected to close in the third quarter, which starts in July. Roark managing partner Neal Aronson said in a statement that Roark looks forward to helping Arby's "great brand achieve its full potential."