The Wall Street Journal-20080129-Investors Turn More Skeptical of Wendy-s Sale

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Investors Turn More Skeptical of Wendy's Sale

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Investors are growing increasingly concerned that Wendy's International Inc. won't be sold, leaving few clear options for how the chain can pull itself out of its slump.

Nine months after putting itself up for sale, Wendy's said yesterday that the special committee of directors weighing the sale is in the "final stages" of its strategic review. The announcement gave no indication whether Wendy's will end up being sold, nor did it explain how long it will take to determine that.

But the lack of an apparent decision so far has some investors doubting the board will go through with a sale. Shares of Wendy's fell 5.3%, or $1.34, to $23.92 at 4 p.m. in New York Stock Exchange composite trading. In addition to the board's announcement, the stock faced pressure from a weak December sales report at rival McDonald's Corp.'s U.S. restaurants.

More than a dozen parties had expressed interest in buying the Dublin, Ohio, hamburger chain as of September. But the turbulent credit markets, coupled with Wendy's deteriorating sales, drove away some potential bidders. Triarc Cos., the most prominent of the interested parties, has been the only one to confirm it made a bid as of late last year. Triarc said its bid was lower than the $37 to $41 a share it originally said it was willing to pay for Wendy's.

Directors at Wendy's are scheduled to meet later this week. It is possible a sale could still go through. For now, investors are starting to look at how Wendy's might fare if it doesn't get sold. One problem is that some of the other options that the board said in April it was considering no longer seem viable.

Directors had stressed that a leveraged recapitalization, which typically involves taking on debt and making a cash distribution to shareholders, was another option for rewarding shareholders. But the weakness in the credit markets makes that difficult to execute.

Another option the board said it would consider was changing Wendy's strategic plan. Already the company has switched marketing and new- product strategies with little success. Wendy's confirmed it has discontinued a line of deli sandwiches called Frescata that was part of a 2006 plan to increase sales. Also yesterday, the company announced it has killed its so-called red-wig advertising campaign, which featured several young men wearing wigs of red pigtails. The company is replacing it with a new campaign by Kirshenbaum Bond + Partners that will focus more on Wendy's food and feature an animated version of the chain's Wendy logo.

The big question is whether the board will keep Chief Executive Kerrii Anderson if the company remains independent. Ms. Anderson, who took over in 2006, has returned cash to shareholders and initially improved sales and profit, but Wendy's same-store sales flattened in the most recent quarter, and some large investors and franchisees have said they lack confidence in her ability to lead the company. Executives also have blamed high commodity prices for pressuring the company's profit. A Wendy's spokesman declined to comment for this article.