Would Wendy’s buy Papa John’s?

A report says the two held merger talks before John Schnatter’s resignation, which says a lot about both companies, says RB’s The Bottom Line.

The Papa John’s saga took another turn on Wednesday, when the Wall Street Journal reported that John Schnatter held merger talks with Wendy’s before his resignation as chairman.

Those talks, apparently, cooled off following the departure.

This was my initial reaction:

“Wendy’s? Really?”

Indeed, the report probably says more about Wendy’s than it does Papa John’s, at least at the moment.

Wendy’s has historically tried and then stopped and then tried and then stopped operating with other concepts.

It acquired Tim Hortons in 1995, for instance, and later acquired Baja Fresh, only to sell the latter and spin off the former in 2006 amid pressure from investors, notably Nelson Peltz.

Arby’s, which Peltz controlled, bought Wendy’s in 2008. The Wendy’s Arby’s Group then sold Arby’s to Roark Capital in 2011.

Wendy’s has since undergone a significant transformation. It has sold off hundreds of company-owned restaurants to franchisees. It has started remodeling locations. And it has started directing certain stores into the hands of favored operators. Same-store sales have now been up for 21 straight quarters.

Wendy’s would not comment on the Wall Street Journal story, which said that the talks between the two companies were largely preliminary.

But, assuming the story is true, that suggests Wendy’s is open to the possibility of creating a multibranded company. Such companies appear to be all the rage in the mergers and acquisitions space.

Wendy’s former sister company, Arby’s, formed one earlier this year by acquiring Buffalo Wild Wings. But all sorts of other investors, including the new owner of Bravo Brio Restaurant Group and even Romano's Macaroni Grill, are considering such multibrand ventures.

It’s also possible that Wendy’s had wanted to keep Papa John’s out of the hands of Restaurant Brands International, which owns rival Burger King and is believed to covet a pizza chain.

What about Papa John’s?

It seems that the incident could have soured Wendy’s on the prospect of an acquisition, and the company backed off.

But it suggests that Papa John’s former chairman was willing to sell his company not that long ago.

Remember: Schnatter might not be the chairman or CEO, but he remains on the company’s board, and he owns 30% of Papa John’s stock. He also has a high-powered attorney in Patricia Glaser.

While it’s possible Schnatter could have cashed out and left, it’s just as likely that he would have had a role in a combined Wendy’s-Papa John’s operator.

While he wouldn’t have nearly the control over that kind of company that he enjoys with Papa John’s, Schnatter would still be one of its largest shareholders, owning perhaps 10% of the new company’s stock, and would have considerable say.

That illustrates the cost to Papa John’s shareholders that this incident has had. If talks did end over the controversy, it might have cost them a potential buyer. That of course makes a sale and a way out of the current mess less likely.

Then again, Papa John’s is actually worth more now than it was before the incident, in part because investors believe the company could be sold.

Papa John’s stock skyrocketed last Thursday after Schnatter’s resignation and, though it has come down, remains higher than the $51 a share for which it was trading the day before the Forbes article on Schnatter’s conference call came out.

Regardless, the report of Wendy’s apparent interest in Papa John’s adds yet another wrinkle to an increasingly complicated story. It’s one that doesn’t appear to be going away anytime soon.

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