Arby's Sale Deleverages Wendy's Balance Sheet

(Wendy's/Arby's sale to private-equity group Roark Capital Group report updated with further analysis and background.)
NEW YORK (TheStreet) -- Wendy's/Arby's (WEN) sale of its struggling Arby's chain to private-equity group Roark Capital Group shows that the fast-food restaurant operator is looking to deleverage its balance sheet and finally divest a brand that's been dragging on its financials for years.

Since the Arby's brand has been underperforming, any acquirer would be looking at the company as a turnaround story, Scott Rostan, principal and founder of Training The Street, told TheStreet earlier this spring.

The deal did not come as a surprise as Wendy's/Arby's has said it was looking for strategic alternatives for Arby's, which has trailed Wendy's performance. Wendy's/Arby's Chairman Nelson Peltz had previously received an oral inquiry from an unnamed third party, according to a June 2010 filing with the Securities and Exchange Commission.

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The merger of Wendy's and Arby's occurred in 2008 under Peltz's leadership, and the company has tried to reinvigorate the brand -- most recently with a new advertising campaign labeling Arby's menu as "good mood food" -- but a meaningful turnaround has yet to materialize.

Some efforts have paid off; in its recent quarterly report, Wendy's/Arby's said that same-store sales -- or sales at stores open at least one year, a closely watched metric in the restaurant industry -- jumped 5.5% at Arby's, while ticking up just a 0.3% at its namesake Wendy's restaurants.

Even so, Rostan suggested that investors should think separately about Wendy's, a well-respected burger chain, and Arby's, an underperformer. He expected that Arby's would be targeted by private-equity firms, noting that it previously had private-equity ownership.

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