Why Wendy's Fell This Week

Shares of fast-food stalwart The Wendy's Companies (NASDAQ: WEN) fell this week, declining 12.9% at the lows, before recovering to a 9.3% decline as of 2:13 p.m. EDT Friday, according to data from S&P Global Market Intelligence.

Wendy's has had a tough go of it of late. The stock is down 20.1% over the past year and down a whopping 73.4% from its all-time highs.

The recent decline in the stock price has sparked speculation that the company could be taken private by its largest shareholder. That would likely be done at a premium, so the stock had risen in recent weeks.

However, Reuters reported this week that Wendy's major shareholder had no plans to buy the company outright, at least in the near-term. That report sent shares falling back downward, erasing the recent speculation-fueled bump.

Nelson Peltz's Trian weighs its options

Wendy's delivered a disappointing earnings report on Aug. 7, reporting a 7% decline in U.S. same-store sales and a 6.3% overall decline in same-store sales, withdrew full-year guidance, and slashed its dividend in half. However, the stock jumped on Aug. 12, when speculation swirled that longtime shareholder and activist investor Trian Fund Management, run by hedge fund manager Nelson Peltz, might make a bid for the entire company. That idea had been circulating since May, when The Financial Times first reported that Trian was contemplating a take-private offer for the company.

Trian has invested in Wendy's since 2005. Today, it owns about 7.9% of the stock, with Peltz personally owning another 16%, for a total of about 24%. So, a buyout would therefore only cost about 75% of the company's current $1.49 billion market cap, or $1.12 billion. However, Wendy's also has about $2.4 billion in net debt, and about $3.5 billion when factoring in operating and finance leases. So, whoever were to buy out Wendy's would also have to assume that debt load.

This week, Reuters reported that the previous speculation was wrong, or that Trian was no longer interested in buying Wendy's outright, while alluding to Trian keeping its "options open."

Image source: Getty Images.

Trian may be letting the new CEO execute a plan

It should be noted that after a year-long search, Wendy's has a relatively new CEO, Bob Wright, who just took over the top role in May. It's possible that Trian had been contemplating a buyout, but that Peltz might have been convinced to let Wright attempt his turnaround plan before taking on the commitment and financial burden of buying the whole company.

Wright will have some work to do, with same-store sales declining across the company's store footprint, and net income plunging by 40.8% last quarter. Clearly, Wright will have to find some way to reenergize Wendy's customer base. That may be a tough task in the highly competitive fast-food industry.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.