Thursday, November 23, 2006

Timmy and Wendy Part Ways

Late Septmeber was the big date. Wendy’s (NYSE: WEN) finally let go of Tim Hortons (NYSE: THI). The call earlier this year to buy Wendy’s shares before the spin-off was completed has turned out well with a return of about 30%. Tim Hortons shares languished after the partial spin-off and launch of its IPO but are trading near an all-time high now that the spin-ff has been completed. The stock may not be cheap but you are holding on to a valuable brand and a franchise which should be able to provide shareholders with sustainable growth for some time.

Meanwhile, it didn’t take Mr. Market too long to realize that it was valuing Wendy’s portion of the business too pessimistically pre spin-off. Wendy’s shares began inching up almost immediately after the split. The script is playing out almost to perfection. The Baja chain has been jettisoned and Wendy’s has announced a $1 billion share buyback program including a recently completed Durtch auction to vacuum up 19% of outstanding shares. Thank you very much. If management can execute its turnaround strategy from here, shares should have another 30% upside from here.

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