Wendy's Delivers Revitalization Plan

The fast-food giant sets a big buyback, looks to new products and plans to streamline operations.
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With its sales showing signs of rejuvenation,

Wendy's

(WEN) - Get Report

outlined a broad plan Thursday to overhaul its business, and for skeptical investors, the burger chain sweetened the deal with the promise of returning $1 billion to shareholders.

The company said it plans to streamline its business and offer new menu options as part of an effort to revitalize its brand. On the trail of its larger rival,

McDonald's

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, Wendy's said it will invest $60 million to expand the test of a new breakfast menu in its stores.

It will also offer new "indulgent" menu items as part of its "Quality Made Fresh" concept, like a double-melt cheeseburger and other "multi-flavor" sandwich options.

Over the next five years, Wendy's plans to spend $100 million buying restaurants from franchisees in order to renovate them and sell them to "proven operators." It will also sell 400 to 500 of its company-operated restaurants to franchisees over the next three years, with an ultimate goal of operating 1,000 total company restaurants.

As for returning cash to shareholders, the company's board approved the buyback of up to 35.4 million of its shares, and it also plans to launch a modified Dutch auction tender offer of up to $800 million using cash from its balance sheet. Wendy's said it will begin the tender offer and announce the price range in October.

"We believe the tender offer is a wise use of the company's financial resources and that investing in our own shares is an attractive use of capital, as we are confident that our shares currently represent a compelling value," Wendy's said. "The tender offer will provide increased liquidity to shareholders, and it is consistent with the commitment we made to shareholders in 2005 to use the cash generated from our strategic initiatives to return value to shareholders."

In addition to the share repurchases, the company plans to pay an 8.5-cent dividend.

Earlier Thursday, Wendy's announced an agreement to sell its money-losing Baja Fresh Mexican chain to a West Coast restaurant operating company for about $31 million. The deal is expected to close during the fourth quarter, subject to customary closing conditions.

All these measures stem from a proxy fight waged earlier this year by Nelson Peltz, the billionaire investor who turned around the Snapple and Arby's brands. Peltz's Trian fund disclosed ownership of a 5.5% stake in Wendy's before launching a scathing attack on the company's management, which ultimately led to the retirement of its CEO, Jack Schuessler.

Schuessler was replaced on an interim basis by the company's chief financial officer, Kerrii Anderson. Wendy's is still looking for a permanent replacement.

After a long period of same-store sales declines, Wendy's last week posted its best quarterly comps performance in two years. The company recorded a 4.1% increase in comps at company-owned stores in the U.S. and a 3.9% gain at its domestic franchised restaurants.

"We fully expect the positive trends to continue through the end of the year and into 2007, and we are on target to reduce costs at Wendy's by $100 million beginning in 2007," said Wendy's in Thursday's press release.

Shares of Wendy's jumped $1.39, or 4.1%, Thursday to close at $34.11.