Wendy's turned down a $7.35-a-share cash offer from an investor group led by Nelson Peltz's Trian Partners on Thursday, and its board adopted a shareholder rights plan, often called a poison pill, to make an unapproved takeover harder. A committee of independent directors voted unanimously against the bid, saying it "substantially undervalues" the company, according to Wendy's announcement filed with the SEC.
Trian, Flynn Group, BlueFive Capital and Sixth Street made the unsolicited, non-binding proposal on Oct. 28 for every share the group doesn't already own. Wendy's says the group also refused to sign a standstill agreement, the kind of deal that would have limited further stock purchases.
How the poison pill works
Shareholders on record when the market closes Nov. 16 get one right per share. If a person or group reaches 15% of the stock without approval from the board or the independent committee, every other holder can buy additional shares at half their market value, which dilutes the buyer. Derivatives that give economic exposure count toward the 15%, and a holder already above that level sets it off just by buying more.
The plan expires on Nov. 3, 2027, unless the board ends it sooner.
The board also rewrote its executive pay plans, according to the company's 8-K. A deal involving Peltz or Peter May now counts as a change in control under those plans, and an executive who loses the job, or resigns for good reason, within 18 months of such a deal gets severance.
What the quarter showed, and the breakfast change
The rejection came the same morning as weak third-quarter results. U.S. same-restaurant sales fell 5.7%, and U.S. systemwide sales fell 7.6%, partly because there are fewer restaurants. Net income was $15.1 million, and adjusted earnings per share dropped to 13 cents from 24 cents a year earlier.
Wendy's says its breakfast strategy will now be "location specific," based on tests that showed a large profit gain. Chief Financial Officer Steve Cirulis said the breakfast decision could be worth as much as $200 million in restaurant-level EBITDA, a measure of profit, across company and franchised restaurants. The release does not say which restaurants will keep or drop breakfast, or when.
Wendy's also plans to buy up to 163 restaurants from franchisee Meritage Hospitality Group. That still needs a final agreement and court approval.
