Triarc Set to Acquire More Restaurants
Friday April 20, 2:42 pm ET
By Lauren Shepherd, AP Business Writer
Triarc Moves to Become Restaurant Operator, Analysts Question Takeover Targets
NEW YORK (AP) -- Now that billionaire financier Nelson Peltz's Triarc has signaled its intention to become a pure-play restaurant operator, Street watchers are wondering who might be next to join the company's portfolio.
The final switch from a more diversified investment manager to a restaurant company came Friday, when Triarc Cos. announced it was selling its controlling stake in investment adviser Deerfield & Co. to focus on fast food chain Arby's, famous for its roast beef sandwiches.
Peltz has made a name for himself by buying stakes in some of the nation's biggest companies. Through one of his other companies, a hedge fund called Trian Group, Peltz purchases shares in companies he views as undervalued, such as Wendy's International Inc., H.J. Heinz Co. and Cadbury Schweppes PLC, and then forces change from within.
Most recently, for example, Cadbury said it was planning on splitting itself in two to separate its U.S. beverage division from its core confectionary business. The announcement came just days after Cadbury said Peltz's hedge fund had taken an almost 3 percent stake in the company.
And last year, he bought a 5.5 percent stake in Heinz and then won a seat on the company's board after a bitter proxy fight.
With Peltz's reputation as a man intent on releasing shareholder value at underperforming companies, Wall Street's analysts said the restaurant sector is ripe with opportunities for takeovers.
Morningstar analyst John Owens said there are a number of restaurant concepts that are now considered undervalued, including Panera Bread Co., Ruth's Chris Steak House Inc., P.F. Chang's China Bistro Inc. and Yum Brands Inc., which owns the Taco Bell and Kentucky Fried Chicken chains.
"There's some good brand names out there," the analyst said. "Businesses, by and large, that generate solid cash flow and some of them have some valuable real estate and very strong balance sheets that could be potentially leveraged up."
Owens said if Peltz were to buy another restaurant company, "he'll certainly need to see some scope to enhance shareholder value to make the type of returns on investment he requires."
Peltz may have his hands full with Arby's, given the company's recent struggles. Arby's purchased its largest franchisee RTM in 2005 and the company has been faced with increasing costs and declining operating margins since. Triarc recently replaced the senior management at the group to turn performance around.
Standard and Poor's analyst Diane Shand said integration of RTM has been "slow" and noted the negative outlook the rating service has on the chain.
But in a statement on the Deerfield divestiture, Peltz said the restructuring may help grow value at the chain.
"We believe that Arby's will be able to significantly increase value through both organic growth and the acquisition of other restaurant companies," Peltz said.
Owens, though, said restaurant companies with several brands under their umbrellas are not always successful since management has to spread its focus across a number of brands rather than spurring growth at just one.
"I would say, in general, portfolios of restaurant companies haven't done that well," he said. "We've seen a lot of companies go in the opposite direction."
Last year, for instance, McDonald's Corp. spun off the Chipotle brand and Wendy's sold the Canadian coffee and doughnut chain Tim Horton's to focus on its own turnaround.
Triarc declined to comment on who might be part of a new portfolio or the timing of any acquisitions.
Investors responded to the news well, sending shares up 9.1 percent earlier in the day. By late afternoon, the shares were up 60 cents, or 3.3 percent, to $18.70 on the New York Stock Exchange.
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