24/7 Wall St. » WEN

24/7 Wall St. Closing Bell (K, SPLS, TWX, AAP, AZO, JPM, GCI, SIFY, WEN, ONB, GTXI, PBY, TNB, CTIC, PMC)

Paul Ausick — Mon, 30 Jan 2012 21:04:30 +0000

All three major indexes opened lower again today on weak markets in both Europe and Asia. European markets continued to be weighed down by the lack of a firm agreement on the Greek debt swap. In Asia, the weak US markets on Friday held gains down, and in Shanghai, where the government was expected to ease reserves requirements, the lack of any such move kept the index in the red for its first trading day following the week-long new year holiday. Crude oil traded down today, with WTI crude oil down -0.66% at $98.90/barrel and Brent crude down -0.62% at $110.77/barrel. Gold closed down -0.19% at $1,732.10/ounce.

The unofficial closing bells put the DJIA down nearly 7 points to 12,653.5 (-0.05%), the NASDAQ fell more than 4 points (-0.16%) to 2,811.94, and the S&P 500 fell -0.25% or more than 3 points to 1,313.02.

There were several analyst upgrades and downgrades today, including Kellogg Co. (NYSE: K) cut to ‘neutral’ at JP Morgan; Staples Inc. (NASDAQ: SPLS) cut to ‘sell’ at Goldman Sachs; Time Warner Inc. (NYSE: TWX) cut to ‘equal-weight’ at Barclays; Advance Auto Parts Inc. (NYSE: AAP) and Autozone Inc. (NYSE: AZO) both raised to ‘buy’ at Goldman Sachs; and JPMorgan Chase & Co. (NYSE: JPM) maintained as ‘buy’ but removed from Conviction Buy List at Goldman Sachs.

Earnings reports since markets closed last Friday have led to some price changes as of the last half hour of trading today: Gannett Co. Inc. (NYSE: GCI) is down -6.77% at $14.19; Sify Technologies Ltd. (NASDAQ: SIFY) is down -5.4% at $4.74; The Wendy’s Co. (NYSE: WEN) is down -3.03% at $5.05; and Old National Bancorp. (NYSE: ONB) is down -1.90% at $11.86.

Other standouts from today include the following stocks:

GTX Inc. (NASDAQ: GTXI) is up nearly 49% at $5.86. The drug maker’s shares have been given a new price target of $19/share from Citigroup. We have more coverage here.

Pep Boys – Manny, Joe and Jack (NYSE: PBY) is up more than 23.5% at $14.92 after posting a new 52-week high of $15 earlier in the day. The auto parts retailer has agreed to an acquisition at $15/share. See more of our coverage here.

Thomas & Betts Corp. (NYSE: TNB) is up 13.33% at $71.28 after posting a new 52-week high of $71.80 earlier today. The electrical components maker has agreed to an acquisition by ABB Ltd. for $3.9 billion.

Cell Therapeutics Inc. (NASDAQ: CTIC) is down nearly -18% at $1.10. The drug maker has withdrawn its application with FDA for approval of its non-Hodgkin’s lymphoma treatment.

Pharmerica Corp. (NYSE: PMC) is down nearly -12% at $12.64. The pharmacy services provider has expressed its wish that a hostile takeover bid from Omnicare Inc. (NYSE: OCR) will be withdrawn, following a Federal Trade Commission suit to block the deal. More coverage here.

Stay tuned for Tuesday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Employment cost index
9:00 a.m. – Case-Shiller housing price index
9:45 a.m. – Chicago purchasing managers index (PMI)
10:00 a.m. – Consumer confidence index
3:00 p.m. – Farm prices report

Paul Ausick

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close, The Day Tagged: AAP, AZO, CTIC, GCI, GTXI, JPM, K, ONB, PBY, PMC, SIFY, SPLS, TNB, TWX, WEN

Media Digest (12/21/2011) Reuters, WSJ, FT, Bloomberg

247wallst — Wed, 21 Dec 2011 11:14:13 +0000

Prosecutors raid Olympus to gain data in a probe of the accounting scandal at the company. (Reuters)

Bank of Japan says it will hold to current policies as the economy in the Asian nation has weakened. (Reuters)

Amazon.com (NASDAQ: AMZN) considered buying Research In Motion (NASDAQ: RIMM). (Reuters)

Electronic Arts (NASDAQ: ERTS) puts a large investment into its new Star Wars: The Old Republic. (Reuters)

The Federal Reserve offers new rules to cut risk-taking by U.S. banks. (Reuters)

Oracle (NASDAQ: ORCL) misses estimates and shares fall 8%. (Reuters)

AT&T (NYSE: T) may buy Clearwire (NASDAQ: CLWR) or Dish Network (NASDAQ: DISH) now that its T-Mobile bid is over. (Reuters)

HTC begins to test new models after a patent suit loss to Apple (NASDAQ: AAPL). (Reuters)

Credit Suisse (NYSE: CS) buys HSBC’s (NYSE: HBC) Japan private bank. (Reuters)

Chinese hackers hit the U.S. Chamber of Commerce. (WSJ)

Some $200 million may have been transferred from MF Global accounts to JPMorgan Chase (NYSE: JPM). (WSJ)

Nokia (NYSE: NOK) and Microsoft (NASDAQ: MSFT) considered a bid for RIM. (WSJ)

Wendy’s (NYSE: WEN) may pass Burger King in sales. (WSJ)

Honda (NYSE: HMC) to shift more production to the North America. (WSJ)

A lack of action by Congress could raise payroll taxes to 6.2% and eliminate long-term unemployment payments. (WSJ)

Fund Starboard Value attacks Aol (NYSE: AOL) for its ongoing plans to invest in content. (WSJ)

LightSquared pushes the FCC to approve its service, which some think interferes with GPS devices. (WSJ)

The Commodity Futures Trading Commission says firms must disclose data on trading over-the-counter securities. (WSJ)

Bill Gross’s Total Return Fund will have its first outflow since 1987. (WSJ)

Spain’s borrowing costs drop as it auctions new bonds. (WSJ)

EU banks probably will take advantage of new European Central Bank loans. (FT)

Troubled EU banks sell more mortgage securities. (FT)

French banks will try to raise $48 billion to satisfy debt needs. (Bloomberg)

Douglas A. McIntyre

Filed under: Press Digest Tagged: AAPL, AMZN, AOL, CLWR, CS, DISH, ERTS, HBC, HMC, JPM, MSFT, NOK, ORCL, RIMM, T, WEN

Top Analyst Upgrades & Downgrades (AEM, AVL, BRCD, CSTR, EV, ERTS, FINL, GILD, GOOG, GDOT, MRH, RIMM, SLXP, WEN, WYNN)

Administrator — Mon, 28 Nov 2011 13:21:05 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this morning.

Agnico-Eagle Mines Ltd. (NYSE: AEM) Cut to Hold at Canaccord Genuity.
Avalon Rare Metals Inc. (AMEX: AVL) Started as Buy at Citigroup.
Brocade Communications Systems Inc. (NASDAQ: BRCD) Reiterated Hold at Argus.
Coinstar, Inc. (NASDAQ: CSTR) Raised to Overweight at JPMorgan.
Eaton Vance Corporation (NYSE: EV) Cut to Underperform at Credit Suisse.
Electronic Arts Inc. (NASDAQ: ERTS) Raised to Buy at Citigroup.
The Finish Line, Inc. (NASDAQ: FINL) named Value stock of the day at Zacks.
Gilead Sciences Inc. (NASDAQ: GILD) Raised to Conviction Buy List at Goldman Sachs.
Google Inc. (NASDAQ: GOOG) Raised to Buy at Citigroup.
Green Dot Corporation (NYSE: GDOT) Started as Outperform at KBW.
Montpelier Re Holdings (NYSE: MRH) named as Bear of the Day at Zacks.
Research in Motion Ltd. (NASDAQ: RIMM) Cut to Neutral at Stern Agee.
Salix Pharmaceuticals (NASDAQ: SLXP) named as Bull of the Day at Zacks.
The Wendy’s Co. (NYSE: WEN) Reiterated Hold at Argus.
Wynn Resorts Ltd. (NASDAQ: WYNN) Raised to Buy at KeyBanc.

JON C. OGG

Filed under: Analyst Calls Tagged: AEM, AVL, BRCD, CSTR, ERTS, EV, FINL, GDOT, GILD, GOOG, MRH, RIMM, SLXP, WEN, WYNN

Media Digest (9/2/2011) Reuters, WSJ, NYTimes, FT, Bloomberg

247wallst — Fri, 02 Sep 2011 10:27:15 +0000

U.S. regulators may ask high-frequency trading firms to provide details of their trades. (Reuters)

The Federal Reserve tells Goldman Sachs (NYSE: GS) it must review its foreclosure records. (Reuters)

Experts cut expectations of unemployment in August to a gain of only 75,000 jobs. (Reuters)

A new hurricane headed for the Gulf of Mexico could disrupt oil production and refineries. (Reuters)

Starz to take its content off Netflix (NASDAQ: NFLX); shares of the movie rental firm may fall 7%. (Reuters)

Amazon.com (NASDAQ: AMZN) says it will add jobs in California if the state backs down on its e-commerce sales tax. (Reuters)

Baidu (NASDAQ: BIDU) launches a mobile app store. (Reuters)

U.S. regulators tell Bank of America (NYSE: BAC) to plan on future deterioration of its business. (WSJ)

A judge rejects a $1.3 billion verdict SAP (NYSE: SAP) must pay Oracle (NASDAQ: ORCL) for theft of information. (WSJ)

Factory orders fall across the globe. (WSJ)

Michael Arrington to leave as the editor of TechCrunch. (WSJ)

Turmoil at Hewlett-Packard (NYSE: HPQ) as customers leave the troubled tech firm. (WSJ)

Samsung to move ahead with Google (NASDAQ: GOOG) Android-powered wireless devices. (WSJ)

The government wants owners of all 104 commercial nuclear reactors to review disaster plans. (WSJ)

Greece says it will miss budget deficit goals because of a drop in GDP. (WSJ)

Ireland says it may need deeper budget cuts to help its economy. (WSJ)

The head of Wendy’s (NYSE: WEN) steps down. (WSJ)

Mosaid Technologies to take over 2,000 patents owned by Nokia (NYSE: NOK). (WSJ)

The U.S. to sue a number of large banks because of “misrepresentations” of the value of mortgage-backed securities. (NYT)

Banks that own Greek bonds push for a new bailout to be completed. (NYT)

T-Mobile loses customers as it waits for a deal with AT&T (NYSE: T) to close. (NYT)

Solar companies in the EU and U.S. seldom have a cost advantage over China rivals. (NYT)

White House budget estimates lower forecasts for the size of the national deficit. (FT)

Economists want the ECB to cut rates. (Bloomberg)

Carl Icahn believes consumer products companies will pay a higher valuation for Clorox (NYSE: CLX) than Wall St. gives to their own firms. (Bloomberg)

Douglas A. McIntyre

Filed under: Press Digest Tagged: AMZN, BAC, BIDU, CLX, GOOG, GS, HPQ, NFLX, NOK, ORCL, SAP, T, WEN

Top Active Trader Alert Stocks (CVX, CSCO, NWSA, SLE, WEN)

247wallst — Thu, 11 Aug 2011 12:56:16 +0000

Active traders and day traders have many stocks to choose from this Thursday morning. We are tracking news and moves in shares of Chevron Corporation (NYSE: CVX), Cisco Systems Inc. (NASDAQ: CSCO), News Corporation (NASDAQ: NWSA), Sara Lee Corporation (NYSE: SLE), and The Wendy’s Corporation (NYSE: WEN).

Chevron Corporation (NYSE: CVX) is up 0.5% before market open to $91.00, relative to a 52-week range of $72.57-$109.94. Oppenheimer upgraded the company to outperform with a price target of $110.

Cisco Systems Inc. (NASDAQ: CSCO) is up 13% premarket to $15.52, relative to a 52-week range of $13.30-$24.60. The company issued fiscal 4Q earnings that were unexpectedly positive.

News Corporation (NASDAQ: NWSA) is up 4.2% relative to a 52-week range of $11.91-$18.35. The company released its 4Q earnings and Goldman set the price target at $17.

Sara Lee Corporation (NYSE: SLE) is down more than 7% premarket to $16.09, relative to a 52-week range of $13.22-$20.26. The company reported diluted 4Q income.

The Wendy’s Corporation (NYSE: WEN) is up 1.7% to $4.63, relative to a 52-week range of $3.89-$5.62. The company released positive 2Q results.

Filed under: General Tagged: CSCO, NWSA, WEN

High Unemployment Could Provide a Lift for Some Stocks (V, MA, DFS, AXP, MCD, YUM, WEN, COST, DG, WMT)

247wallst — Fri, 05 Aug 2011 13:23:50 +0000

Many economists don’t believe that the US debt ceiling is the biggest problem the country faces. In their view the most compelling issue is unemployment, currently at 9.1% and, given the nearly inevitable contraction in the economy brought on by lower federal government spending, more likely to rise than to fall in the near term. While it’s hard to think of in these terms, there are some firms that could actually prosper from high unemployment — not necessarily by taking advantage of other people’s misery but by the nature of the businesses they are in.

Financial services firms that offer consumers revolving credit are at the top of the list. Visa Inc. (NYSE: V), Mastercard Inc. (NYSE: MA), Discover Financial Services (NYSE: DFS),and American Express Co. (NYSE: AXP) lead the list. Consumer-oriented companies that offer low-priced goods and services are also serious contenders for a boost. These include McDonald’s Corp. (NYSE: MCD), Yum! Brands, Inc. (NYSE: YUM), The Wendy’s Co. (NYSE: WEN), Costco Wholesale Corp. (NASDAQ: COST), Dollar General Corp. (NYSE: DG), and Wal-Mart Stores Inc. (NYSE: WMT).

Credit card debt in the US has fallen from a high of $957.5 billion in 2008 to $790 billion in April of this year. [http://www.federalreserve.gov/releases/g19/current/] The Federal Reserve Bank’s preliminary estimate for May indicated a rise in revolving debt to $793 billion. As more people are unemployed or stay unemployed longer, they often have no choice but to access any revolving credit that is available to them. The Fed’s May estimate indicates an annual percentage increase in revolving credit of 5.1%, the largest positive move since 2007, when revolving credit grew at an annual rate of 8.1%.

The national average credit card lending rate is nearly 15%, while the lowest rate available is near 11%, not including the teaser rates. The rate rises to nearly 25% for consumers with bad credit. One could argue that the rates should be lower, but as the recent growth in credit use demonstrates, consumers will pay the market rate when they have no other choice.

Because the unemployed still need to eat and wear clothes, low-priced stores ought to get the boost they felt back in 2008 and 2009, when consumers shunned the mid-priced outlets and shopped instead at Wal-Mart, Costco, and Dollar General stores, where everything from fresh vegetables to shoes cost less. Recent consumer movement away from some of these stores is very likely to reverse itself.

This morning’s report on non-farm payroll gains in July was slightly encouraging as the unemployment rate fell from 9.2% to 9.1%, and the country added 117,000 jobs. The drop in unemployment was mainly attributed to an increase in the number of people who are too discouraged to continue looking for work.

It is almost painful to make these observations because they are based on the misfortune and misery of millions of Americans. The country is staring another recessionary period right in the eye and, as always, there will be winners and losers.

Paul Ausick

Filed under: General Tagged: AXP, COST, DFS, DG, MA, MCD, V, WEN, WMT, YUM

The 24/7 Wall St. Top 11 Analyst Calls of the Week (ALU, CSCO, EM, GPS, HCA, JNPR, MPEL, NFLX, P, S, WEN)

Administrator — Sat, 30 Jul 2011 16:34:53 +0000

Each morning we cover the upgrades, downgrades, and initiations we see in Wall Street research calls from the analysts. Many calls offer great insight not found elsewhere, while some calls turn out to just be dead wrong and the become the dubious calls of the week. There were several very dubious calls this last week which analysts wish they could go back and take the opposite stance. We also saw some very insightful calls.

This last week’s top research calls seen were in shares of the following: Alcatel-Lucent (NYSE: ALU); Cisco Systems, Inc. (NASDAQ: CSCO); Emdeon Inc. (NYSE: EM); Gap Inc. (NYSE: GPS); HCA Inc. (NYSE: HCA); Juniper Networks, Inc. (NYSE: JNPR); Melco Crown Entertainment Ltd. (NASDAQ: MPEL); Netflix Inc. (NASDAQ: NFLX); Pandora Media, Inc. (NYSE: P); Sprint Nextel Corporation (NYSE: S); The Wendy’s Company (NYSE: WEN).

We have given a summary of each call in this week’s summary. We also included the price action and added in other color on the news if applicable.

Alcatel-Lucent (NYSE: ALU) had nothing short of a horrible week as the market hit the stock on peer weakness and then as its earnings was not up to snuff. On Friday came a big downgrade. We reported that it was cut to Sell at S&P Equity Research but it was actually cut to Strong Sell. Alcatel-Lucent remains one of the better networking and comm-equipment shares in 2011, but the week closed out at $4.05 versus $51.9 the Friday before.

Cisco Systems, Inc. (NASDAQ: CSCO) needs all the help it can get, and a bear turned into a bull. Goldman Sachs was negative for quite some time on Cisco and was right on the way down. On Thursday the firm raised its rating to Buy with a $21 price target. Unfortunately this was bad week for networking and comm-equipment stocks, but maybe the firm is trying to just hit somewhere close to the bottom rather than predict the absolute bottom as shares were $16.46 the Friday before and closed the week out at $15.97. The Thursday gain did go from $15.69 to $16.01 on the day of the upgrade.

Emdeon Inc. (NYSE: EM) had a strange week. Reports were out that Blackstone may be in talks to buy the company for $3 billion in enterprise value, including its more than $1 billion in debt. Shares of the provider of revenue and payment cycle management solutions effectively went from $13 to over $16 on the reported buyout talks, but William Blair stepped in on Thursday and cut the rating to Market Perform. That doesn’t sound as promising as speculative investors might have hoped.

Gap Inc. (NYSE: GPS) has been battered and bruised after its dismal warning killed the stock in recent weeks. But what has happened is that the cost of cotton has come crashing down and this all bodes well for Gap’s input costs and ultimately its margins. Jefferies raised the rating to Buy from Hold, but more importantly it took the price target to $25 from $16 in the call. Maybe the Gap isn’t all “cr@#” after all.

HCA Inc. (NYSE: HCA) had an awful week after its earnings showed a trend that people are having fewer expensive and elective surgeries due to harder times. This is a recent IPO and when you have a wave of huge underwriters and a huge company that suddenly goes into the confession booth on Wall Street you have to wonder who knew what and when. Certainly this hasn’t just come up as a surprise overnight. Goldman Sachs was in the underwriting group and it downgraded shares to Neutral from Buy after the earnings. Another dubious call, although the firm was far from being alone in its research. Shares closed on the lows of the week at $26.68 versus a close of $34.61 the prior Friday before. Don’t just single Goldman Sachs out alone though, Jefferies raised HCA to “Buy” the week before and many of the underwriting firms had positive ratings. Now it is a busted IPO, so maybe investors should let the rest of the analysts downgrade it and let the dust settle and then consider nibbling for a longer-term position now that the bargain bin has been found.

Filed under: Analyst Calls, Editor's Picks, Research, The Week Tagged: ALU, CSCO, EM, GPS, HCA, JNPR, MPEL, NFLX, P, S, WEN

Top Analyst Upgrades & Downgrades (CSCO, CTXS, GLW, CTB, DDS, DOW, EM, EQIX, GPS, HES, IPI, MANT, SANM, SI, SXL, WEN)

Administrator — Thu, 28 Jul 2011 12:31:20 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Thursday morning.

Cisco Systems, Inc. (NASDAQ: CSCO) Raised to Buy at Goldman Sachs.
Citrix Systems, Inc. (NASDAQ: CTXS) Raised to Overweight at Morgan Stanley
Corning Inc. (NYSE: GLW) Reiterated Buy with $26 target at Argus.
Cooper Tire & Rubber Co. (NYSE: CTB) Maintained Underperform as Bear of the Day at Zacks.
Dillard’s, Inc. (NYSE: DDS) Maintained Outperform as Bull of the Day at Zacks.
The Dow Chemical Company (NYSE: DOW) Raised to Buy at BofA/ML.
Emdeon Inc. (NYSE: EM) Cut to Market Perform at William Blair.
Equinix, Inc. (NASDAQ: EQIX) Raised to Buy at Citigroup.
Gap, Inc. (NYSE: GPS) Raised to Buy at Jefferies.
Hess Corporation (NYSE: HES) Cut to Hold at Deutsche Bank.
Intrepid Potash, Inc. (NYSE: IPI) Raised to Buy at BofA/ML.
ManTech International Corp. (NASDAQ: MANT) Cut to Underperform with $34 target at Credit Suisse.
Sanmina-SCI Corp. (NASDAQ: SANM) Reiterated Buy with $15 target at Argus.
Siemens AG (NYSE: SI) Cut to Hold at S&P Equity Research.
Sunoco Logistics Partners. L.P. (NYSE: SXL) Raised to Outperform with $93 target at Credit Suisse.
Wendy’s Company (NYSE: WEN) Started as Buy at Janney Capital.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Filed under: Analyst Calls Tagged: CSCO, CTB, CTXS, DDS, DOW, EM, EQIX, GLW, GPS, HES, IPI, MANT, SANM, SI, SXL, WEN

Top Analyst Upgrades & Downgrades (WIFI, COG, CSCO, CPWM, DMD, DRYS, GS, GMCR, JDSU, JNPW, WFR, MS, SPWRA, WBC, WEN, YUM, ZION)

Administrator — Tue, 14 Jun 2011 12:26:41 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Tuesday morning.

Boingo Wireless, Inc. (NASDAQ: WIFI) Started as Outperform at William Blair.
Cabot Oil & Gas Corporation (NYSE: COG) Raised to Outperform as Bull of the Day at Zacks.
Cisco Systems, Inc. (NASDAQ: CSCO) Cut to Underperform at RBC.
Cost Plus, Inc. (NASDAQ: CPWM) called the daily Value Stock at Zacks.
Demand Media, Inc. (NYSE: DMD) Raised to Buy at Goldman Sachs.
DryShips Inc. (NASDAQ: DRYS) Raised to Outperform at Wells Fargo.
Goldman Sachs Group Inc. (NYSE: GS) Started as Underperform at RBC.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Reiterated Buy with $97 target at Canaccord Genuity.
JDS Uniphase Corporation (NASDAQ: JDSU) called Bear of the Day at Zacks.
Juniper Networks, Inc. (NYSE: JNPR) Cut to Sector Perform at RBC.
MEMC Electronic Materials Inc. (NYSE: WFR) Raised to Neutral at Goldman Sachs.
Morgan Stanley (NYSE: MS) Started as Underperform at RBC.
SunPower Corporation (NASDAQ: SPWRA) Cut to Sell at Goldman Sachs.
WABCO Holdings Inc. (NYSE: WBC) Started as Outperform at Credit Suisse.
Wendy’s/Arby’s Group, Inc. (NYSE: WEN) Raised to Buy at UBS.
Yum! Brands Inc. (NYSE: YUM) Reiterated Buy with $62 target at Argus.
Zions Bancorporation (NASDAQ: ZION) Raised to Outperform at KBW.

JON C. OGG

Filed under: Analyst Calls Tagged: COG, CPWM, CSCO, DMD, DRYS, GMCR, GS, JDSU, JNPW, MS, SPWRA, WBC, WEN, WFR, WiFi, YUM, ZION

Wendy’s Sale of Arby’s, A Move Back to Basics & Back to Growth (WEN, MCD, YUM)

Administrator — Mon, 13 Jun 2011 11:39:31 +0000

No money was injured while filming

Wendy’s/Arby’s Group, Inc. (NYSE: WEN) is soon to just be Wendy’s again, sort of. The company has been exploring alternatives to try to unlock the value of the two unsuccessfully merged Wendy’s and Arby’s brands and there is now a deal in the works. Wendy’s/Arby’s has announced the sale of Arby’s Restaurant Group, Inc. to a buyer formed by Roark Capital Group, an Atlanta-based private equity firm, with an aggregate transaction value of some $430 million.

Since Wendy’s merged with Arby’s, the fast-food sector has been heavily dominated by the likes of McDonald’s Corporation (NYSE: MCD). Wendy’s has declined in value since the merger and McDonald’s has seen its shares rise by more than 50% over the same time period. Yum! Brands, Inc. (NYSE: YUM) has almost doubled.

Wendy’s will effectively retain an 18.5% ownership interest in the Arby’s business. While Arby’s has not been able to add much value to Wendy’s of late, it has been easy to forget that Arby’s is the second largest quick-service sandwich chain, i.e. fast-food chain, as it has more than 3,600 systemwide locations.

The formal terms of the agreement will allow Wendy’s/Arby’s Group to receive about $130 million of cash at closing. The deal is subject to “customary adjustments” and Wendy’s will still get to retain a common ownership interest of 18.5% in the Arby’s business. That has an expected value of about $30 million. Where the rest of that $430 million is derived in the total valuation is that Roark Capital is set to assume about $190 million of corporate debt that is related to Arby’s that is mostly tied to capital lease and sale-leaseback obligations. Another boost, well sort of, is that the transaction will create an income tax benefit to Wendy’s/Arby’s Group of roughly $80 million that will be realized over the next two years.

While this looks to have been a net-loss so far (due to that tax benefit), Wendy’s/Arby’s maintains that this creates value for its holders, is expected to be accretive to earnings, and it is also expected to de-leverage the balance sheet. The company also plans to now solely focus on Wendy’s by revamping its menu, expanding breakfast opportunities, modernizing and remodeling, and building new domestic and international restaurants.

Wendy’s/Arby’s Group noted that the “discontinued operations” status should occur in its second quarter 2011 financial results and should close early in the third quarter, subject to regulatory approvals and customary closing conditions. Roark will invest $180 million and own a $180 million non-dividend paying preferred stock interest and an 81.5% common stock interest. Roark will also commit to invest an additional $50 million into Arby’s under certain circumstances through 2013 to provide liquidity and growth capital. Roark will also receive preferred stock in return for that additional investment.

Wendy’s/Arby’s closed at $4.52 on Friday with a market cap of almost $1.9 billion and with a 52-week trading range of $3.83 to $5.22. Shares are indicated higher, although there is still more than two hours until the market opens and formal price indications are not yet clear.

On July 25, 2005, Triarc acquired RTM Restaurant Group, Arby’s largest franchisee, and formed Arby’s Restaurant Group, Inc., an Atlanta-based company comprised of more than 3,500 restaurants. Of those, Arby’s Restaurant Group owns and operates more than 1,000 restaurants located in the United States. On September 29, 2008, Triarc Companies Inc. merged with Wendy’s International, Inc. to form Wendy’s/Arby’s Group, Inc. Wendy’s/Arby’s Group, Inc. is now listed as the third largest quick-service restaurant company in the United States.

September of 2008 was an unfortunate time to close on a merger as it was right before the recession went into hyper-drive. Wendy’s shares went from $5.22 to $5.67 on the news on the day the deal was announced. With shares at $4.52 today, it has not exactly lived up to expectations. Thomson Reuters still has a consensus price target objective of roughly $5.66 for Wendy’s/Arby’s.

JON C. OGG

Filed under: Food, Management Change, Mergers and Buy Outs, Private Equity, Retail Tagged: MCD, WEN, YUM