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Wendy's Shares Fall After News Of Note Offering

The Associated Press

NEW YORK (AP) — Shares of fast food chain Wendy's/Arby's Group Inc. dropped Thursday after the company said it will sell $500 million in senior unsecured notes due in 2016 and use the proceeds to repay debt.

Shares fell 20 cents, or 5 percent, to $3.80 in morning trading.

After the market closed Wednesday, the company announced the private offering and said it will use the money to prepay about $125 million in borrowings outstanding under its senior secured term loan. Some of the money will also go to Wendy's/Arby's Group for general corporate purposes, including funding growth initiatives and returning capital to shareholders in the form of stock buybacks or dividends.

CL King & Associates analyst Michael W. Gallo said in a note to investors that a share buyback would be the most likely use for the proceeds not used to pay back loans.

Gallo estimated that if all the remaining proceeds were used to buy back shares, Wendy's could repurchase about 20 percent of the shares outstanding.

He also said he believes the company's management is attempting to "opportunistically take advantage of a favorable interest rate environment."

Gallo also noted that the company has also recently signed a new two-year transition services agreement in which it will pay Trian Fund Management L.P., a hedge fund led by billionaire investor Nelson Peltz, $250,000 a quarter in consulting fees.

Gallo said the new agreement was a step in the right direction, but added that he had hoped the consulting fee would have "gone away entirely."

The company has been relying on Trian — one of its biggest shareholders — to help it merge the Wendy's and Arby's brands together. The Wendy's/Arby's Group was formed when Arby's owner, Triarc Cos., bought the Wendy's brand. Triarc was also formerly led by Peltz.

Gallo has a "Strong Buy" rating on the stock with a $7 price target, implying he expects the shares to rise 75 percent in the next 12 months.