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Thursday, October 12, 2006

Wendy's Says Adios to Baja Fresh

Stock Tickers: WEN, THI, MCD, CMG, LOCO

Wendy's (WEN) did something today that has been in the works for a while. They sold off their Baja Fresh unit, their Mexican fast food concept. That had 300 units, and Wendy's just honestly blew it when it came down to it. That is why the sale will only yield $31 million, which means that each unit went for just under $100,000.00 on the surface.

The group purchasing Baja Fresh is a consortium of investment groups lead by David Kim. Mr. Kim and his team are experienced restaurant and retail operators. Being both a franchisor and franchisee, the group has several national brands including Sweet Factory, Cinnabon, KaBloom, and Denny's with a total combined franchise and owned locations of about 400 stores.

At less than $100,000.00 per unit, you know that Wendy's just wanted to get the hell out of the Mexican Food business and clear out of the operating liabilities with the locations. That is probably far less than it would take to go in and tool up a 300 unit system with a supply chain and processing system in tact. Regardless, WEN stock is up on the company focusing on core operations. The company is planning to test breakfast menus in about 100 locations and the company thinks it can add more than $1 Billion to its top-line results.

This allows Wendy's to now just go focus on Wendy's. They already spun out Tim Hortons, so now they are a pure-play burger joint with a soup and salad bar again. Wendy's (WEN) shares look like they are close to a year low on many trading systems, but you have to account for that Tim Hortons (THI) $35.61 dividend/spin-off completed on October 2, 2006. On a standalone basis WEN is trading up very close to its highs for 2006.

This is on the same day that McDonalds (MCD) raised its guidance and is trading at its highest levels since 1999. The Chipotle Mexican Grill (CMG) spin-off from McDonalds is also trading up 2.5% on the day.

For whatever it is worth, the Baja Fresh spin-off is not likely going to throw up any real barriers to the upcoming IPO of El Pollo Loco (LOCO).

Jon C. Ogg
October 12, 2006

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