Is Wendy's Most Likely Scenario A Take-Under? (WEN, MCD, TRY, BKC)

Despite reports that Wendy’s International Inc. (NYSE:WEN) would-be acquisition process is being hampered by liquidity concerns in the credit markets, its stock is actually up about 2% today.  Bids are due today and the concerns are mounting that bidding price will be highly conditional and have more outs than the New York sewer systems.

At $31.90, assuming the fiscal 2007 estimates of $1.22 are accurate, the fast food operator trades just over 26-times this year’s estimates.  McDonald’s (NYSE:MCD) is running much better and it trades at a far cheaper 20.6-times 2007 earnings estimates.

Another issue that may be holding things up Triarc Companies’ (NYSE:TRY) review.  It is still unknown if Triarc will be the ultimate buyer of Wendy’s to roll into Triarc’s Arby’s Franchise or if Triarc will be able to separate itself from its money management operations.  We have reviewed that one for our Special Situation Investing Newsletter, and the verdict is still not in there.

Wendy’s has a 52-week trading range of $29.56 to $42.22, and the 2% rise to $31.90 sure gives ‘special situation investors’ looking for buyouts, spin-offs, and restructurings the feeling that maybe Dave Thomas’s baby needs a strong turnaround manager.  By the time the turnaround is in force this liquidity mess in the credit markets may have played itself out.  Then investors might be looking at a much better scenario.  That finally worked well for Burger King (NYSE:BKC) holders.

A would-be bidder is arguably getting to overpay on valuations for a company that still needs a turnaround.  Unless there is a hidden and completely overlooked credit and liquidity environment change, Wendy’s should scrap this review  and fix itself before it seeks a buyer.

Jon C. Ogg
November 12, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.