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Boston College Law School

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Tuesday, July 31, 2007

Wendy's, Triarc and Stapled Financing

Nelson Peltz, Chairman of the Triarc Companies, Inc. yesterday wrote a letter to the Chairman of the board of directors of Wendy's International concerning the inability of the two companies to reach agreement on several significant provisions of a confidentiality agreement governing Triarc's participation in the auction of Wendy's.  In the letter, Peltz also stated that Triarc presently anticipates that it would be prepared to offer consideration in the range of $37 to $41 per share to Wendy's shareholders.  Triarc currently owns the Arby's restaurant chain as well as 9.8% of Wendys itself. 

Triarc filed the letter on a Schedule 13D amendment, showing that the letter is more for public negotiating position more than anything else.  In the letter, Triarc alluded to concern over a provision requiring any bidder to use seller stapled financing.  Wendy's here appears to be following the fairly common practice of requiring any bidder participating in its auction to use pre-packaged financing offered by Wendy's financial adviser, termed stapled financing.  Since the financing is on the same terms for all of the bidders it permits the seller, in this case Wendy's, to better assess the competing bids.  Triarc is objecting to this provision since, as an industry buyer, it thinks it can obtain better terms in the market.

Stapled-financing has always been a bit problematical.  The reason is that it puts the seller's financial adviser on both sides of the transaction.  The adviser wants to simultaneously obtain the highest price for the seller, but also wants a price that is not too high so as to cause trouble for the buyer in making its future debt payments.  The banks have papered over this conflict by having third party investment banks retained to provide the seller an independent fairness opinion.  But, as I have said before, fairness opinions, though they have been a great source of income for the independent investment banks such as Greenhill, are manipulable and in today's market rather unreliable.  Consequently, there is still reason to be concerned with the issues raised by stapled financing even if a fairness opinion is obtained.  But here, the issue is different.  Triarc is objecting because it believes it can obtain better terms for its own financing.  The appeal of this argument is convincing and likely why Triarc highlighted this dispute in its letter rather than covering any of the other disputed provisions.  What these are, Triarc did not disclose. 

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