CHICAGO, June 13 (Reuters) – Wendy’s/Arby’s Group Inc said it would sell most of struggling roast beef sandwich chain Arby’s Restaurant Group Inc to private equity firm Roark Capital Group for about $130 million in cash.
Roark, whose portfolio already includes the Auntie Anne’s, Carvel Ice Cream and Cinnabon chains, will also assume about $190 million in Arby’s debt.
Wendy’s/Arby’s will retain an 18.5 percent stake valued at about $30 million and get an income tax benefit of about $80 million that it expects to realize over the next few years.
In January, the company announced plans to sell Arby’s and focus on the Wendy’s hamburger business.
The total value of the deal is essentially in line with consensus outlook for the sale of Arby’s, Sanford Bernstein said in a note to clients.
Shares of Wendy’s/Arby’s rose 5.8 percent to $4.78 in early trading.
Wendy’s/Arby’s, the third-biggest U.S. fast-food restaurant operator, has been grappling with rising costs of commodities like beef, bacon, fryer oil and dairy.
The company has also struggled with increasing competition from rivals like McDonald’s Corp and Yum Brands Inc, which have larger international exposure.
Roark also committed, under certain circumstances, to invest an additional $50 million in Arby’s through 2013 for preferred stock in return.
Based in Wendy’s/Arby’s hometown of Atlanta, Roark is quite familiar with running franchised restaurants. Its portfolio also includes Corner Bakery, Schlotzsky’s and Wingstop.
Wendy’s and Arby’s were combined in 2008 when billionaire investor Nelson Peltz’s Triarc Cos, then Arby’s parent, bought Wendy’s for $2.2 billion to create the world’s third-largest publicly held fast-food chain.
Arby’s generated roughly one-third of company sales, but its performance until recently was among the industry’s worst and represented a drag on overall results.
But during the first quarter, Arby’s turned in stronger sales than Wendy’s.
North American sales at Wendy’s restaurants open at least 15 months were flat.
Same-restaurant sales at all Arby’s North America units were up 5.5 percent as turnaround efforts took hold. Executives attributed the rise to the chain’s new value menu, its new “Good Mood Food” branding and the successful Angus Three Cheese and Bacon Sandwich.
Wendy’s/Arby’s expects to complete the deal early in the third quarter, subject to regulatory approvals and closing conditions. Adjustments to the purchase price, based primarily on net working capital, could occur after the closing.
UBS Investment Bank acted as financial adviser to Wendy’s/Arby’s, and Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser. King & Spalding LLP and DLA Piper LLP are Roark’s legal advisers.
(Reporting by Arpita Mukherjee in Bangalore, Jessica Wohl in Chicago and Lisa Baertlein in Los Angeles; Editing by Don Sebastian)