Morning Brief: Ricky Sandler’s Eminence Capital Takes a Bigger Bite of Wendy’s

November 27, 2017   Stephen Taub

The activist made the move as the company is about to be hurt by new rules for franchise fees that will take effect next year.

Ricky Sandler’s Eminence Capital boosted its stake in Wendy’s by about 40 percent, to roughly 12.5 million shares, or 5.2 percent of the fast-food giant, according to a regulatory filing. As a result, it is now the fourth largest shareholder. The filing indicates this is a passive investment. The largest shareholder, of course, is Nelson Peltz’s Trian Fund Management. Peltz is chairman of the board, while Trian co-founder Peter May is the vice chairman. Peltz’s son Matthew Peltz and Joseph Levato, a long-time business associate of the Trian crowd, also sit on the board. In the third quarter, Melvin Capital took an initial position of 2 million shares. Wendy’s stock closed at $13.86 on Friday, its lowest price since April.

Wendy’s is one of a number of companies expected to be hurt by new revenue recognition rules for franchise fees scheduled to go into effect on January 1. Specifically, fees for new stores and franchise renewals will be required to be booked over the life of the franchise term, rather than up front, according to a report from Credit Suisse. Royalty fees are not affected, but other related fees are.

"Neither of these changes will have any impact on cash flows, so theoretically [they] should not impact equity valuations," the investment bank said in a recent report. "However, our conversations suggest investors are concerned that reduced EPS could negatively impact these stocks, even if non-cash, particularly given relatively elevated valuations."

It added that Wendy’s is one of several companies whose earnings will be "most impacted." Wendy’s current low stock price may suggest the impact is already reflected. Credit Suisse currently has a neutral rating on the stock and a $15 price target.
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Dan Och’s Och-Ziff Capital Management disclosed it owns 2.5 million shares of Jianpu Technology, or 9.36 percent of the online Chinese financial adviser, which went public nearly two weeks ago. The company describes itself as providing users "with personalized search results and recommendations that are tailored to each user’s particular financial needs and credit profile."

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Farallon Capital Management bought about 480,000 shares of Wabtec, boosting its stake to 5.1 percent. It remains the sixth largest shareholder of the provider of technology-based equipment and services for the rail industry.

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Saba Capital Management boosted its stake in Delaware Enhanced Global Dividend & Income Fund to nearly 1.6 million shares, or 10.06 percent of the closed-end mutual fund. The credit specialist, which has been taking activist stakes in closed-end funds, made this filing in an amended 13G, meaning it is a passive investment.


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