Wendy's Reveals Acquisition War Chest

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Dublin, Ohio-Wendy's International Inc. has a $500 million war chest readily accessible for acquisitions, according to its president Jack Schuessler.

In a conference this month, Schuessler told industry analysts that the company has assembled a mergers-and-acquisitions team to move forward with a previously reported diversification strategy. The plan, which would include a search for a third restaurant concept, would be employed to boost Wendy's long-term growth opportunities.

Denny Lynch of Wendy's said the company is confident that it can reach its current annual 12- to15-percent growth goals with its two existing brands, Wendy's and Tim Hortons.

"But if we want a higher earnings target, then we may need additional revenue streams," Lynch explained. Wendy's said it could handle about $500 million more in debt and still maintain its investment-grade debt rating. If the company makes no acquisitions, the cash on its balance sheet would grow to $500 million by 2005, from $170 million currently, officials indicate.

Wendy's said it would consider all segments of the food service industry from casual dining to fast food, but management offered few details on possible candidates and put no timetable on when a purchase might be made.

"Certainly we understand quick service, and we understand franchising, so part of our M&A strategy will be to stay close to what we do best," Lynch said.

Analysts who follow the company echoed Lynch's sentiment. "I prefer something in the fast-casual sector or the nonhamburger QSR segment because that is where Wendy's expertise is," said Mark Kalinowski, a restaurant analyst with Salomon Smith Barney in New York.

When it comes to fast-casual concepts, Kalinowski said Wendy's might consider chains like St. Louis-based Panera Bread Co.-which has 260-plus units and is valued at about $275 million-or the 50-unit Cosi sandwich chain from New York, which would carry a smaller price tag. But Kalinowski said he wouldn't rule out the possibility of a larger acquisition as well, similar to the size of the Tim Hortons chain, which Wendy's purchased in 1995 for more than $400 million.

Since the Tim Hortons acquisition, Wendy's has doubled the size of the Canadian doughnuts-and-coffee chain from 1,000 to nearly 2,000 restaurants. -Nation's Restaurant News