Dive Brief:

• Wendy's filed an objection to the potential sale of NPC International assets to stalking horse bidder Flynn Restaurant Group on Thursday due to Flynn's interest in two Wendy's competitors, Arby's and Panera, which the large franchisor said it would not be willing to divest, according to a court filing.
• The chain also objects to the break-up fees of $20.4 million if NPC goes with a competing bid, or $10.4 million if franchisors do not approve of the Flynn bid, claiming these respective expenses "would be a burdensome, unnecessary expense," and could chill the bidding process. A competing bid would have to increase its offer by $21 million and $11 million, respectively, to be successful, Wendy's claims.
• While the court approved Flynn as a stalking horse bidder on Saturday, Wendy's objections could complicate the process. Flynn originally bid $816 million to acquire NPC's 1,300-plus Pizza Hut and Wendy's restaurants in early June. Pizza Hut said in a separate filing that it approves of the bid and has worked out an agreement with Flynn.

Dive Insight:

Wendy's objections could make it difficult for NPC to complete its sale with Flynn, delaying a process NPC's lenders want to go quickly so as to receive the most repayment as possible for its loans.

But Wendy's objections have merit. With a competitive bidding process still underway, and 26 potential buyers performing due diligence, Wendy's argues the fees are not necessary, since this process is not suffering from attracting bidders. Wendy's also disapproves of expense reimbursements to Flynn of $1.5 million if the bid is not accepted, specifically if franchisor consent is not provided.

While Wendy's continues to work with NPC and Flynn, the chain also objects to Flynn's ownership of 137 Panera restaurants and 369 Arby's, which would violate Wendy's Legacy Franchisee Agreement that prohibits franchisees that have any interest in QSRs selling similar products within a three-mile radius of a restaurant or within a three-mile radius of any restaurant under the system. Both Panera and Wendy's sells salads, while Arby's and Wendy's both sell milkshakes, fries and chicken sandwiches.This violation is of particular concern to Wendy's, since Flynn would become the franchisor's largest franchisee with 394 Wendy's units. By contrast, when NPC acquired Wendy's units, it ended up selling its Five Guys Burgers & Fries, according to the filing. 

Wendy's and Flynn also have not reached agreements on issues related to development and reimagining restaurants, as well as a need to cap the ownership, similar to its 400-unit cap imposed on NPC, to limit ownership concentration by one franchisee.

The burger chain also considered purchasing the restaurants prior to the stalking horse bid, which would allow the chain to acquire the units along with a consortium of existing and new franchisees. This process would allow Wendy's to make sure that units end up with franchisees it prefers, according to Restaurant Business. The QSR's strategy of late has been to buy up franchisees and sell units to operators that are willing to redesign restaurants and create new units, but if Flynn becomes sole owner of the nearly 400 units, Wendy’s would be unable to do so.