Wendy’s might benefit from Arby’s buying wings chain
The value of Wendy’s stake in Arby’s might rocket higher, thanks to the latter’s parent acquiring Buffalo Wild Wings.
Arby’s owner, Roark Capital, plans to buy Buffalo Wild Wings for $ 2.4 billion and fold the chicken-wing restaurant company under Arby’s management.
Wendy’s owns an 18.5 percent stake in Arby’s, a relic of when the two companies merged before Arby’s was sold to Roark in 2011. Wendy’s stake in Arby’s was valued at $ 325.8 million as of Oct. 1, according to a filing with the U. S. Securities and Exchange Commission.
Wendy’s said it is too early to know what impact the deal will have on the value of its investment in Arby’s.
“Given our investment position in Arby’s, we are supportive of the proposed transaction,” Wendy’s said in a statement. “As has been our practice, we will provide periodic updates on the value of our ownership stake during our regular financial reporting.”
One analyst, Chris O’Cull of Stifel, said in a research note that if Arby’s plan to merge with Buffalo Wild Wings goes through, Wendy’s stake in the new entity would likely increase, although the exact amount is not known. When Arby’s was sold to Roark in 2011, Wendy’s 18.5 percent stake was worth about $30 million.
Arby’s fortunes have soared since the company split with Wendy’s. Roark paid Wendy’s a special dividend of $ 54.5 million in 2015 after a particularly good quarter.
It isn’t well understood, though, just how Buffalo Wild Wings and Arby’s will be consolidated.
Roark is a private- equity firm, which doesn’t make financial disclosures. Arby’s and Buffalo Wild Wings will share a CEO, which makes it appear that Arby’s might just swallow the wings chain whole, according to John Gordon, a restaurant- industry analyst who is principal of Pacific Management Consulting Group.
“This would imply Arby’s would get the value upside, and thus, Wendy’s,” Gordon said.
Roark said in announcing the deal that Buffalo Wild Wings will operate as an independent brand. Roark also owns Hardees, which is a separate investment from Arby’s.
Gordon thinks more will come out next year as the deal is finalized and Wendy’s divulges the value of its stake in Arby’s. The deal is expected to close during the first few months of 2018; it needs the approval of Buffalo Wild Wings’ shareholders. If the value of Wendy’s stake rises a lot, investors will want to know what the company plans to do with its stake, he said.
“When and why would they sell it?” Gordon said.