Is Wendy's/Arby's shopping for another chain?

Last October I had lunch at a midtown Wendy’s with Roland Smith, the newly named CEO of the chain and its adoptive parent of a few weeks, Wendy’s/Arby’s Group. Smith and his team were blitzing the media to discuss how the company formerly known as Triarc was going to generate more value for shareholders as a two-concept fast-food franchisor.

Among the more surprising routes mentioned by Smith was the acquisition of more brands. The company had just spent $2.3 billion to buy Wendy’s after more than a year of contentious pursuit. Was it really open to other deals?

Fast forward to yesterday morning, when Wendy’s/Arby’s announced plans to raise $550 million in debt. About $125 million will be used to pay off outstanding loans—the equivalent of paying off a big credit-card bill. The other $425 million, the company said, would be used for “general corporate purposes.” It listed seven specific possibilities, including “acquisitions of other restaurant companies.”

Most of the other options are moves that would likely appease shareholders—things like new unit development, paying a dividend, or buying back stock. Yet the company’s share price dipped. “There’s clearly some hesitation on the part of investors,” Bob O’Brien wrote on a Barron’s blog. “The likeliest source of concern: that Wendy’s would make another big-ticket acquisition.”

Back in October, Smith wouldn't discuss possible acquisition candidates, nor even what kind of companies might have been on his shopping wish list. The only clue he provided was a comment that any target would have to be a high-quality rather than a low-cost provider.

It’s a safe presumption that it would also have to be a potential or current franchisor, since that’s Wendy’s/Arby’s business. Smith didn’t say anything about menus, but presumably the company would want something that wouldn’t compete with its burger or sandwich chains. That means it’d have to specialize in something like chicken, pizza or beverages.

The criteria are smoky at best. But there are plenty of candidates that would fit.

Jamba Juice, for one. It’s the hands-down leader in the smoothie segment, with a healthy average ticket.

Church’s has traditionally been a value provider, but it might be an affordable play in the chicken market, and is widely reported to be for sale.

The chain's sister concept, Caribou Coffee, would also meet Smith's vague criteria.

There are also any number of upstart, high-quality pizza concepts currently competing on a regional basis.

Since co-branding figures large in Wendy’s/Arby’s growth strategy, a dessert add-on might also make sense. A regional soft-serve specialist, maybe?

This, of course, is all speculation. But a $425-million down payment makes a lot more sense than “general corporate purposes.” That’s a lot of new carpet and paper clips.