A settlement filed Thursday would drop Wendy's nearly $147 million claim against its bankrupt franchisee and make Wendy's the opening bidder for 163 of Meritage's restaurants.
Two months ago Wendy's was trying to fire Meritage Hospitality Group. Now it wants to be the first bidder for half its restaurants.
Motions filed Thursday in the U.S. Bankruptcy Court for the Western District of Michigan ask a judge to approve a settlement between the burger chain and the Grand Rapids franchisee, along with procedures for selling Meritage's restaurants, according to WOOD TV8's review of the court documents. Wendy's opening offer for 163 restaurants is $45.9 million in net cash: a $53.1 million base price less a $7.2 million image activation credit. It would pay another $6 million for four properties in Michigan and the Toledo, Ohio area.
The bigger concession sits on the other side of the ledger. Wendy's had claimed it was owed nearly $147 million in fees and royalties, Bloomberg Law reported, and the settlement would satisfy that claim. It would also reinstate the franchise agreements Wendy's tried to terminate one day before Meritage filed for Chapter 11 on Sept. 17, so the restaurants can actually be sold.
Meritage's own motion described the trade plainly. The deal "replaces that value-destroying litigation with a value-maximizing sale process," the company wrote, and "converts an all-or-nothing dispute into a path to maximize recoveries for all stakeholders."
Meritage ran 320 restaurants in 15 states when it filed, most of them Wendy's. The settlement carves that footprint into pieces. Beyond the 163 Wendy's has bid on, 41 restaurants in Connecticut and Massachusetts and 11 in North Carolina would go to auction or private sale, 42 in the South are slated for a private sale, and 18 are designated for closure, with room to add more. The closing deadline is Jan. 5.
None of this was a surprise in outline. Wendy's CEO Bob Wright disclosed a letter of intent for up to 163 Meritage restaurants on the company's Nov. 5 earnings call, as QSR Web reported, and we covered that move at the time. What Thursday's filing adds is the price, and the fact that Wendy's is trading a nine-figure claim to get there.
The 163-restaurant price is a floor, not a final number. As stalking-horse bidder, Wendy's takes the package "assuming no better or higher offer," and the letter of intent it described on the earnings call leaves room for approved franchisees to bid higher. For operators already in the system with capital and nearby units, that is the opening. For Wendy's, which rejected a $1.4 billion take-private bid earlier this month, it is a bet that running these stores itself beats leaving them in limbo while lawyers bill.
The court still has to approve both the settlement and the sale rules. Whether any franchisee tops $45.9 million will show how badly the rest of the system wants these stores.
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