Arby's goes on sale causing Wendy's shares to rise

Wendy's/Arby's Group Inc. is considering selling its struggling Arby's business and concentrating more on its better-performing Wendy's hamburger chain.

The Atlanta restaurant operator has seen softer sales at both its Wendy's and Arby's locations, but Arby's has struggled more because its sandwiches — which can cost $5 or more — are more expensive than many other fast-food offerings.

Diners turned instead to cheaper alternatives during the economic downturn.

The company announced in November that it would be coming out with lower-priced options at Arby's but now has decided to explore other options, including potentially shedding the business. UBS Investment Bank will help Wendy's/Arby's as it explores alternatives for Arby's.

There are almost 3,700 Arby's restaurants in the chain, which is known best for its roast beef sandwiches. Wendy's has more than 6,500 restaurants in more than 20 countries.

Focusing on the Wendy's brand, given its relative size, is the key to maximizing shareholder's return, Nelson Peltz, the company's chairman, said in a statement Thursday.

Peltz's Trian Fund Management investment firm owns about one-fourth of Wendy's/Arby's stock.

The overall company has been the subject of takeover speculation as well. Wendy's/Arby's said it received a third-party inquiry in June about acquiring the fast-food company. In November, management pushed for Trian to act quickly on the inquiry.

Morningstar analyst Joscelyn MacKay said selling Arby's could make Wendy's itself a more tempting target for a leveraged buyout.

If that doesn't happen, getting rid of Arby's to focus on the more profitable Wendy's business appears to be a good move, Mackay said in a research note. Arby's has been a drag on the company's results since the two companies combined in 2008.

It's similar to the announcement by Yum Brands just two days ago that it was looking to sell its Long John Silver's and A&W chains in order to focus on its more successful Taco Bell, KFC, and Pizza Hut brands.

Wendy's/Arby's lost money in its third quarter, hurt by higher ingredient costs and weakness at Wendy's and Arby's locations. The company plans to report preliminary fourth-quarter and full-year results on after the market closes on Jan. 26.

The announcement sent shares up in trading Thursday. Shares rose 39 cents, or 8.5 percent, to $4.85 in afternoon trading.