Why Wendy’s is losing the burger wars - and is now a takeover target for Nelson Peltz

In the burger wars currently raging in the United States, there is one clear loser among the major chains: Wendy’s. Its fortunes have declined so much that it’s now the target of Nelson Peltz’s Trian Fund Management, which is offering to take the restaurant private for $1.4 billion, a sum that’s not even 1% of McDonald’s market value.

The restaurant chain, once beloved for its “fresh, never frozen” beef and reputation for being a higher-quality fast-food option, has been struggling for 18 months. Its promotions have fallen flat, intense competition has stolen customers, and a revolving door in the corner office has deprived it of the focus needed to get out of its rut. Long the second-largest U.S. burger chain behind McDonald’s, Wendy’s has slipped to third place behind a resurgent Burger King.

In May, Wendy’s overhauled its management, hiring Potbelly’s turnaround veteran Bob Wright as its fourth CEO in three years, as well as Potbelly’s finance chief Steve Cirulis as CFO, in an effort to reassure Wall Street that Wendy’s was in steady hands. For a time, it worked: “Wendy’s turnaround prospects have improved under [Wright and Cirulis] whose successful Potbelly revamp supports a strategy focused on the menu, marketing, operations, and digital capabilities,” Bloomberg Intelligence analyst Michael Halen wrote in a research note.

Despite the confidence in Wendy’s new C-suite, shares remain under pressure and are 65% below where they were three years ago, when sales began to stagnate. (Shares briefly hit a 20-year low in June.) So it’s hardly surprising that Wendy’s is now the target of Peltz’s Trian, which would rather turn the restaurant chain around far from the glare of the public markets.

Wendy’s was founded in 1969 when Dave Thomas, a former Kentucky Fried Chicken franchisee, opened a restaurant and named it for his daughter. It quickly found a niche with its distinctive square hamburger patties, chili, and Frosty desserts that differentiated the chain from McDonald’s. It even had some pop culture moments, most notably in 1984 with its famous “Where’s the Beef?” campaign.

The chain has had many ups and downs over the years, but it started to show cracks in earnest last year, when quarterly sales declined.

In its most recent quarter, U.S. sales at its established restaurants fell 7%, the sixth decline in a row. More worryingly, visits to U.S. stores slumped 12.5%, suggesting many Wendy’s patrons are falling out of the habit of eating there. Wendy’s will report its third-quarter results on Thursday, and they will be heavily scrutinized for any signs of a reprieve. Analysts expect Wendy’s to report a U.S. same-store sales decline of about 6%.