Wendy's/Arby's Strange Co-Op Arrangement

Wendy’s/Arby’s Group (WEN) reported numbers which show a reported 9.1% increase in EBITDA. They have been diligent about reducing costs. They announced a Supply Chain Co-Op which will start in Q4. There was very little information provided other than the fact the franchisee’s will be financial partners. The question becomes who gets the benefits and why penalize the shareholder and advantage the franchise owners. Initially Wendy’s funds the co-op and then the franchisee’s start to contribute. But there is no real information on the financial model and therefore how do you understand the risks.

The co-op is seeded with $15.5 million over the next 18 months. Wendy’s has approximately $645 million in cash and equivalents. If it’s an opportunity to reduce costs why not take full ownership and maximize shareholder wealth.