Dozens of buyers are eyeing bankrupt NPC International restaurants

Flynn Restaurant Group was OK’d as the stalking horse bidder for the Pizza Hut and Wendy’s operator, even as Wendy’s objects. But many other potential buyers are interested.
Photo courtesy of Wendy's

More than 50 potential buyers are eyeing at least a piece of the massive number of restaurants operated by the bankrupt Wendy’s and Pizza Hut franchisee NPC International, setting a stage for a remarkably competitive set of auctions that start later this month.

One of those bidders is the biggest restaurant franchisee in the U.S., Flynn Restaurant Group, which last week was approved as the “stalking horse” bidder for all of NPC’s restaurants for $816 million—over objections from Wendy’s, which has not approved Flynn as an operator of the nearly 400 units in its system that are up for sale.

Still, the Flynn bid is already 12.5% higher than the $725 million NPC initially hoped to get in a sale of the assets from a trio of auctions—one for each of the Wendy’s and Pizza Hut operations and another for the whole company.

At least 26 potential buyers are eyeing some of the Wendy’s restaurants, while at least 32 are eyeing some Pizza Hut locations, according to documents filed with the U.S. bankruptcy court.

NPC is the largest franchisee in both the Wendy’s and Pizza Hut systems, operating 900 of the pizza chain’s units after the closure of 300 in recent months. The franchisee filed for Chapter 11 bankruptcy in July with about $900 million in debt, and the potentially competitive bid process increases the likelihood that lenders recover all of that.

As the stalking horse bidder, Flynn gets the inside track on the restaurants, setting a minimum bid that potential buyers have to overcome. But Flynn—which operates Applebee’s, Arby’s, Panera Bread and Taco Bell restaurants--could also get a breakup fee of as much as $20.5 million if the company is not the winning bidder.

Wendy’s objected to Flynn’s bid, in part because of the substantial increment “is unlikely to encourage bidding,” the company’s attorneys said in a court filing on Friday.

Yet Wendy’s objected to Flynn’s bid for a bigger reason: Its ownership of both Arby’s and Panera Bread franchises.

“Wendy’s files this limited objection to make it clear that it has not consented to Flynn becoming a franchisee, let alone the largest franchisee in the Wendy’s system,” attorneys for Wendy’s wrote in the filing.

According to the filing, Flynn refused in negotiations to sell the company’s 369 Arby’s locations and 137 Panera Bread restaurants.

That is a particularly notable point, because at one time Wendy’s owned Arby’s, and until recently Wendy’s held a significant position in the company and then its owner, Inspire Brands, until its divestiture last year.

In addition, according to court documents, Flynn has also “not proposed a sufficient guarantee or finalized a development and reimagine plan to allay Wendy’s concerns.”

Wendy’s typically wants franchisees to agree to develop new units or remodel existing locations as a condition of its approval for them to buy locations. The company has an aggressive strategy of steering restaurants into the hands of approved operators, in part by getting those operators to agree to such capital spending.

Attorneys for Flynn, however, argue that the issues between the company and Wendy’s are “all solvable.” The operator also said in a court filing that it has “agreed to put significant capital into the business” for both Wendy’s and Pizza Hut, including development, reimaging, limitations on debt and other issues.

The franchisee also said it agreed to confidentiality provisions and operating covenants “designed to alleviate stated competitive concerns” as well as the size of Flynn’s portfolio.

“As the largest or one of the largest franchisees for four of the nation’s leading brands, Flynn has a deep responsibility of being the largest franchisee in a system and knows how to work in partnership with its franchisors,” the franchisee said, adding “Wendy’s has demonstrated its willingness to work with the Arby’s and Panera brands in the past.”

Flynn notes that Pilot Flying J operates both Wendy’s and Arby’s, and that Hamra Enterprises operates both Panera Bread and Wendy’s locations.

Pizza Hut, according to the filing, has reached an agreement with Flynn on business terms for their relationship.

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