Investment group urges Wendy's to spin off Tim Hortons
13.03.2010, 20:44
An investment group has made its intentions for Wendy's International Inc. plain -- it wants the company to spin off its Tim Hortons unit and sell most of its Wendy's restaurants to franchisees.
Londoni szállás
The investment group, centered around New York-based Pershing Square Capital Management LP, outlined its proposal in a letter to Wendy's management, filed Tuesday with the Securities and Exchange Commission.
Representatives for Pershing and Wendy's were unavailable for comment Wednesday morning.
The Pershing group in April disclosed that it had bought stock and options to give it a 9.9 percent stake in Wendy's (NYSE:WEN - News). It hired an investment firm, Blackstone Group LLP, in June to develop ideas for improving the Dublin-based company's stock performance.
Blackstone's analysis suggested a separate Tim Hortons would fetch a stock price of between $33 and $39 a share, while a standalone Wendy's would have a stock price of between $17 and $18 a share.
The plan has the support of some industry analysts, the Pershing group noted. An analyst at Friedman Billings Ramsey & Company Inc. said in January that Wendy's and Tim Hortons might be worth more as separate companies. A Merrill Lynch analyst suggested in June that Tim Hortons and Wendy's, as separate companies, could be worth a total of between $64 and $76 a share.
Wendy's opened trading Wednesday at $46.61 a share.
Tim Hortons, a Canadian doughnut chain, has growth potential because of its stable cash flow and strong brand recognition, according to the Pershing group. As a separate company, Tim Hortons management could focus more tightly on growing the business.
The Pershing group suggested Wendy's could boost its stock price an additional $11 to $13 a share by selling most company-owned restaurants to franchisees. It could use the proceeds from the sale to buy back stock. Reducing the number of shares would increase Wendy's share earnings, according to the Pershing group, and raise its stock price.
Selling off stores would also allow Wendy's to concentrate on developing new products, the Pershing group said. The group said franchisees run their restaurants more efficiently than the corporate office.
Although the Pershing group recommends a spin-off, Wendy's has sought to diversify its offerings away from its core hamburger restaurants in recent years. It acquired Tim Hortons in 1995 and Baja Fresh Mexican Grill, a fast-casual Mexican chain, in 2002. It also owns stakes in smaller restaurants such as Cafe Express and Pasta Pomodoro.
The Pershing group isn't the only investor taking a special interest in Wendy's. ABN Amro Holding NV (NYSE:ABN - News), a Netherlands-based bank, reported in May that it acquired 5 percent of Wendy's. Highfields Capital Management LP, a Boston hedge fund with a history of forcing change on management, disclosed in April that it had taken a 6.1 percent stake in Wendy's.