Peltz Aims to Expand Wendy's Board Term Paper

Excerpt from Term Paper :

However, this is not a viable solution and it risks doing more damage than good, as it could lead to a decrease in the company's market share.

The issuing of new stocks could be a temporary solution to retrieving more financial resources. However, the chances of success for such a strategy are rather limited due to the difficulties the company is in and the already decreased quotation. It is true that the stock price increased by 1.8%, but this is not sufficient to boost investors' trust and interest. Furthermore, given the already existent financial difficulties, it would probably be best if Wendy's International looked for funds somewhere else.

The most viable alternative would be to request loans from financial institutions. The reason why this alternative would be preferable to issuing stocks is given by a tax factor. As such, interest expenses are deductible, whereas dividend payments are not (ch. 16, p.32). But given the state the company is in, they might find it difficult to obtain finances from banks. And if they did, the interest rate costs would be extremely high. Furthermore, the bank loan would have to be returned. And this means that Wendy's must invest the retrieved finances into growth and development strategies, which ensure the corporation with future income. But they must also pay the debt to their shareholders. And halving the loan into investments and debt payments can easily lead to insufficient resources to achieve either one of the two desiderates. For the future, this would mean that the company will once again face financial shortages and could easily find itself in the incapability to pay the loan and face as such bankruptcy.

Another potential solution would be lease. This means that Wendy's would close leasing contracts with manufacturing suppliers in order to purchase newer and better technologies at flexible payment rates. These technologies could then be used to improve the quality of Wendy's products and increase the efficiency of their business operations. The lease contract would allow the company to use the purchased items and they would have to pay the supplier a monthly rate. The ownership over the items would only be achieved at the maturity date of the lease contract. However this does indeed sound like a viable solution, leasing involves additional costs and can even prove more expensive than bank loans.

However this is not a pure financial strategy, franchising could resolve part of the shortages within Wendy's. In this order of ideas, the international chain could close franchise deals with international partners. These contracts would allow the foreign partners to run Wendy's hamburger stores in the Wendy culture and ways. It would also ensure the parent company with revenues generated by the franchised stores, but it would reduce operational expenses.

Another non-financial strategy but which could generate financial benefits is the reduction of manufacturing and operational costs. This could however compromise the final quality of the products and services offered by Wendy's International.

Whichever the solution preferred by the executives at Wendy's International, fact remains that the company depends upon the decision taken by Trian. And their decision is yet unclear. As such, Wendy's must wait for a certain proposition from Trian, and only then reanalyze their alternatives.

3. Conclusions

Wendy's International is currently faced with financial shortages due to increased competition on the market and their lack of new and popular products. Their problems have materialized in reduced interest from investors, decreased price per share and reduction of sales and consequently profits.

A viable alternative to resolving the problem comes from Nelson Peltz's Trian. But the company's intervention is not without consequences as they desire to gain more control. As such, Train is faced with two possibilities, from which they have yet to choose the most efficient one. The first alternative is to increase the number of board members owned within Wendy's and detain majority. The other alternative is to purchase Wendy's.

The financial implications of a possible future merger are unknown and can vary based on Trian's intentions. If on the other hand, the purchase intention does not materialize, the company officials will have to analyze the available strategies to resolving the crisis.



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