Triarc Companies, Inc. (NYSE: TRY) and Wendy’s International, Inc. (NYSE: WEN) have signed a definitive merger agreement.  According to the release, this has been approved by the
boards of directors of both companies.

The merger appears to be an all-stock buyout entitling Wendy’s shareholders to receive a fixed ratio of 4.25 shares of Triarc Class A Common Stock for each share of Wendy’s common stock they own.  Before Triarc dilution, that looks like a price of $26.775 based on Wednesday’s close.

We did just predict in our Special Situation Investing Newsletter (trials can now see that report) on Monday night that Wendy’s would crater and either go proactive under Peltz’s activism or that it would finally crater to a buyout.  But we predicted that Peltz & Friends would have to come up with $30.00 per share in order to execute a friendly merger or at least one that isn’t quite so hostile.  While we are disappointed with this transaction, this is a stock for stock merger that does at least allow upside if the combined operations can reach the synergies, savings, and growth that it wants to achieve.

It does not appear that Trian Acquisition I Corp. (AMEX: TUX), thePeltz SPAC, is part of this deal other than that the Trian Partnerssponsor will vote in favor of the merger along with Peltz and others(who own roughly 35% of Triarc).  That SPAC involvement may change ifthis deal needs akick-up, but that is just for pondering rather than anything certain. 

The combined systems will have approximately 10,000 restaurant unitsand pro forma annual system sales of about $12.5 billion, making it thenation’s third largest quick service restaurant company.  Roland Smith,53, Triarc’s CEO, will continue in the role for the combined companyand also will become CEO of the Wendy’s brand.  Triarc will change itsname and come under the Wendy’s name.  Its board will be reconstitutedto have 12 board members, two of which will be nominated by Wendy’s. 

The transaction also requires the approval of Triarc and Wendy’sshareholders, and if approved is expected to close in the second halfof 2008.  Depending on how this share price reaction goes, this"approval" from Wendy’s is not assured as of today.  We noted in ournote last week from Capital IQ about the takeover defense provisions that werein place, but now with both boards having approved the deal and with somuch control over it it will require minority shareholders to stand updemanding more.  The history for minority shareholders winning outisn’t that great.

Our price entry based on Monday’s close was $25.30 and shares traded aslow as $24.63 the next morning.  Wendy’s shares closed at $25.32yesterday and unfortunately shares are indicated around $24.50pre-market today.  Wendy’s 52-week trading range is $22.18 to $42.22.

We had a hunch that Wendy’s management was going to fold over likecheap suit, but they did it over the barrel simultaneously.Congratulations go out to Mr. Peltz & Friends for getting the company at this price, but Wendy’s board of directorsgets a poor grade here for punishing shareholders after a miserableperiod of undue punishment.  As we have noted, and as the reasoning fora hedge with options in special situations, management with its back tothe wall and under pressure often makes poor decisions on the fly.

The only saving grace is that Wendy’s earnings were scheduled forFriday, and this signals that the results were probably going to bemuch worse than even we were expecting.

Unless the earnings out of Wendy’s are much more atrocious than weexpected, our fair value for Wendy’s based upon relative values,potential earnings growth, market expansion, and a more favorableshareholder stance stands at roughly $30.00.  That doesn’t mean thatwill be the price though.

Jon C. Ogg
April 24, 2008

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