Large Investors Not Done With Wendy's

Posted by Jason R. Job

Today, Billionaire Investor Nelson Peltz told Wendy's International (NYSE: WEN) that he believes that the shares are undervalued.  In a Schedule 13D filed by Peltz's investment vehicle Trian Fund Management, Peltz notes that the purpose of his approximate 5.5% stake in Wendy's is as follows:

"The Filing Persons acquired the Shares and Options because they believe that the Shares are currently undervalued in the market place and represent an attractive investment opportunity. In early December 2005, a representative of the Filing Persons attempted to contact John T. Schuessler, the Chairman of the Board and Chief Executive Officer of the Issuer, several times. After leaving several messages for Mr. Schuessler, the representative of the Filing Persons was contacted by Mr. John Barker, Senior Vice President, Investor Relations and Financial Communications of the Issuer. The representative of the Filing Persons told Mr. Barker that “we come in peace” and that the Filing Persons had established a significant stake in the Issuer, just below the Schedule 13D 5% filing threshold. The representative of the Filing Persons requested a meeting with Mr. Schuessler, at a convenient time and location, to discuss the Filing Persons’ value creation plan, which includes (i) the immediate commencement of a 100% tax-free spinoff of Tim Hortons, (ii) the sale of the Issuer’s ancillary brands, (iii) the reevaluation of certain components of the Issuer’s previously announced strategic initiatives and (iv) a significant reduction in costs at the Issuer’s Wendy’s Old Fashioned Hamburgers business. The representative of the Filing Persons advised Mr. Barker that if the Filing Persons’ value creation plan was discussed and agreed to, the Filing Persons would possibly maintain their ownership level below 5% (and not file a Schedule 13D) since the intention of the Filing Persons was not to wage a battle in the press. On December 6, 2005, Mr. Barker informed the representative of the Filing Persons that Mr. Schuessler was currently too busy “managing the brand” to meet with representatives of the Filing Persons. A paper prepared by the Filing Persons that sets forth “A Recipe for Successful Value Creation” at the Issuer is attached hereto as Exhibit 3, and incorporated herein by reference.

The Filing Persons do not have any present plan or proposal that would relate to or result in any of the matters set forth in subparagraphs (a) – (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon completion of any of the actions discussed above. The Filing Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer’s financial position and strategic direction, the Issuer’s response to the actions suggested by the Filing Persons, price levels of the Shares, conditions in the securities market and general economic and industry conditions, the Filing Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, but not limited to, purchasing additional Issuer Securities or selling some or all of their Issuer Securities, communicating with the Issuer or other investors or conducting a proxy solicitation with respect to a minority of the Board of Directors of the Issuer at the Issuer’s next annual meeting, at which one-third of the Board of Directors of the Issuer may be elected. The Filing Persons have no intention, either alone or in concert with another person, to acquire or exercise control of the Issuer." 

The full version of the Schedule 13D filing can be found here.  A Reuters article can be found here.

This is the second time this year that a large shareholder has went after Wendy's stating that its shares are undervalued.  As described in the post An Example of The New Strategy of Hedge Funds: Wendy's, Pershing Square Capital Management pushed Wendy's to spin off a portion of its Tim Hortons business.  Pershing Square has also purchased a large stake in McDonalds, which is described in the post Will Ronald McDonald Put on His Smiley Face for the Hedge Funds.

In morning trading, Wendy's is up $1.50 to $52.87 or approximately 3%.