Wendy's agrees to sell Arby's to equity firm

The marriage of square burgers and roast beef sandwiches is about to end.

Wendy's/Arby's Group said Monday that it will sell a majority stake in its struggling Arby's brand to Roark Capital Group, the Atlanta private equity firm. The move marks the end of a short-lived union between the two fast-food chains, and represents a role reversal. Arby's started as the suitor in the relationship, and ended up on the chopping block.

In an interview with the Associated Press, Wendy's/Arby's Group CEO Roland Smith said that the combination of the two fast-food chains in 2008 had "absolutely not" been a failure.

"I think that at the time we put the two brands together it was the exact right thing to do," Smith said, "but any business that continues to do well and perform has to be nimble and adapt to what the market is."

Wendy's/Arby's shares rose 19 cents, or 4 percent, to $4.71 in morning trading.

Roark, which already owns Moe's Southwest Grill, Cinnabon and other restaurants, will pay $130 million in cash for an 81.5 percent stake in Arby's. It will also assume $190 million worth of Arby's debt.

Smith said Wendy's/Arby's had entertained offers from "quite a number" of bidders, but declined to give details. He said that the company's decision to keep an 18.5 percent stake in Arby's should signal its confidence in Arby's future.

Smith is a veteran of the Arby's side, having served as CEO of Arby's Inc. from 1997 to 1999 and again starting in 2006. He has been CEO of the combined Wendy's and Arby's since it was formed in September 2008. He said that selling Arby's was "a little bittersweet."

Smith will receive a cash bonus of $350,000 when the sale goes through, and general counsel Nils Okeson will receive a bonus of $100,000, according to regulatory filings.

Smith said in the interview that he didn't think employees would be bothered by the bonuses.

"I would say that the folks in our company understand clearly how compensation works, and it is a very typical (bonus) that would come up any time we go through a change in our organization," he said. "I quite honestly don't think anyone's going to focus on it."

Wendy's/Arby's will change its name after the sale is completed. Spokesman Bob Bertini said the company is considering options, and the new name will include the word "Wendy's."

Wendy's/Arby's Group will also get a tax benefit worth $80 million related to the sale, which Bertini described as an "offset to taxable income."

Wendy's and Arby's first came together when billionaire investor Nelson Peltz and his Triarc hedge fund, which already owned Arby's, agreed to scoop up Wendy's as well. Peltz remains involved as the company's chairman. Smith said Peltz is "a tough taskmaster, but he's fair," and said they have a "very, very solid relationship."

Atlanta-based Wendy's/Arby's Group has struggled since its formation in late 2008, the depths of the recession, losing money for seven of its 10 quarters. In January, the company said it would consider selling Arby's in order to focus on Wendy's, which it hopes to expand by launching breakfast in more locations and by opening more restaurants overseas.

Wendy's has about twice as many restaurants - 6,500 to Arby's 3,600 - and represents about 70 percent of the company's revenue. However, in the first quarter, Arby's seemed like the stronger player by some measures. Its revenue rose by 5 percent, while Wendy's revenue fell less than 1 percent, though some of Arby's performance was likely due to sale prices.

The sale is expected to close in the third quarter, which starts in July. Roark managing partner Neal Aronson said in a statement that Roark looks forward to helping Arby's "great brand achieve its full potential."