The idea of Baconator Pizza is a good one, but that alone does not explain Wendy's flirtation with Daddy John.
The Wall Street Journal reported this week that Dublin-based Wendy had heard at least one merger proposal with Papa John's from Louisville. The conversation is said to have taken place in the weeks leading up to the news that pizza company founder John Schnatter had used a racial fraud in a teleconference.
The talks have since cooled off, and Schnatter is chairing Papa John's board
The idea that Wendy Papa buys John was a shock and a mystery to some. It is also unknown if this suggests that Wendy's is seeking an acquisition.
"It was out of the blue," said John Gordon, director of the Pacific Management Consulting Group and industry analyst. "Why in the world would you want to do it?"
The idea that Papa John could merge with another company or be bought by private equity is not new. Analysts and insiders in the industry have been discussing the possibilities for months, at least since Schnatter resigned in January, after reporting late in last year about independent protests from National Football League players who indirectly depressed his chain's pizza sales.
In fact, many people say that the only way Papa Johns can be lucky is to sell himself and dismantle the brand presence of Schnatter.
"We believe that the one who owns the company needs to completely ream Papa Johns' advertising and packaging changes to change consumer perceptions," including the company name change, Stifel analyst Chris O & Cull said in a current research note.
Wendy's been sailing for years without much in the way of inclement weather So why a rehabilitation project? Well, it could boost the company's share price. On Wednesday, news on the merger talks told Wendy's stock price 2 percent, though he returned that profit over the next two days.
"If you're publicly traded and you need a short-term catalyst, look at it." Gordon said
In fact, Michael Gallo, an analyst at CL King & Associates, believes that daddy John could improve Wendy's profit which makes the deal a bit attractive.
Gallo believes that Papa John could add $ 90 million a year to Wendy's Free Cash Flow, a term for unpaid money that can be arbitrarily used for the business, such as debt repayment, repurchase of shares or the payment of a dividend. This is attractive to investors, and Gallo (Gallo) put Wendy & # 39; s stock "strong buy".
O & Cull and Gallo gave the price of Papa Johns near $ 2 billion.
Wendy's market capitalization, a measure of The Company's value is just over $ 4 billion, and it has a fairly healthy balance sheet with $ 327 million of Arby.
Wendy's also has Nelson Peltz as Chief Executive Officer and largest shareholder. Peltz, who took office last year and has represented Procter & Gamble on the Board of Directors, has net assets of $ 1
Peltz has conducted mergers for Wendy in the past, including a deal with Arby Peltz controlling the firm. This deal has not been lovingly remembered.
"That was a disaster," Gordon said.
Wendy has also upset the takeover of Baja Fresh, although she is well connected with Tim Hortons.
Gallo also sees the prospect of Wendy's, through her stake in Arby, making a profit from a deal in which Arby's parent Roark Capital buys Papa Johns and folds into Arby's.
Gordon wonders if Peltz is looking for a way to increase the yield on his long-held stock. Wendy's stock has risen more than 11 percent in the last year, but leaves the market as a whole by almost 2 percentage points.
An agreement with dad John would give Wendy a new vehicle for growth if the company can overcome Daddy's hole John's dropped. It could also help Wendy develop his international portfolio better. Papa John's has a strong presence overseas and has maintained relationships with solid franchisees – and domestic scandals do not usually go that far, Gordon said.
Consolidation has been a topic in many industries, including restaurants.
Wendy's former stable mate, Arbys, recently bought Buffalo Wild Wings. The investment group 3G has bought Burger King, Tim Hortons and Popeyes. Then there is the king of restaurant conglomerates, Darden, who owns eight concepts, including Longhorn Steakhouse and Olive Garden.
Big deals might be sexy for investors, but Gordon is skeptical of Megadéale's long-term prospects.
There are so many problems when trying to assemble different groups, "he said," Mergers look good on paper and there are always synergies, but realized gains are often much lower. "