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Financial Management Essay

Buy Wendy’s Stocks and make have its proposal to increase the number board of directors from 13 to 15 and have additional 5 seats or a total of eight directors from the 15 directors. This move has a clear basis on the case facts as earlier mentioned. If computed mathematically the proposal to increase the number of the board of directors to 15 is more favorable to Mr. Peltz in his plan to have control. In other words, he will need less number of stocks to get majority representation with an eight-board majority out of the 15-member board than the seven-board majority based on 13-member board.

To propose to increase the number of the board of directors is a function of the number of ownership of shares. For Mr. Peltz to have his nominees elected to the board of directors he must make it sure that his ownership of shares from Wendy’s Board of directors must the proportional number of outstanding shares of Wendy. To illustrate to have majority of the board of directors he must make it sure that he has the influence to have a majority of the stocks to be able to have the desired number of seats

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in the board of directors.

In its attempt to purchase share of Wendy, when its price of its stocks rose, the company of Mr. Peltz appeared to be not ready to buy as could be deduced from the following case facts after Trian having remained silent after the change in stock price. It was further provided though that before the change in the stock price of Wendy’s, the same company has struggled to increase sales and profit amid competition from other fast-food chains and a lack of popular new products. Its board is considering a variety of moves, including a deal, recapitalization or a change in business strategy (Adamy, 2008).

Since the case facts do not mention whether Mr. Peltz’ company could really afford to buy Wendy’s shares this could still be a wait and see option. For Mr. Peltz to decide whether to acquire the stocks of Wendy should be based on whether his company would earn in making the acquisition. But since it would seem that information that would show its capacity are not given in the case as would lead to estimate of cost of capital, this option is still open ended. 2. 1. 2 Option 2 – Under the present 13-member-board, have at least six or which ever is possible under the circumstances.

This option is based on the following case facts where Trian planned to renominate six of its people in the board under the following names: Mr. Levin, Chairman of Sharper Image, Jeffrey Bloomberg, a director at building-materials company Nortek Inc. ; Ulysses Bridgeman Jr. , president of Manna Inc. , Kenneth Gilbert, a director at Trian Acquisition I Corp; Richard Mandell, an investor and financial consultant; and Gregory Sachs, a director at specialty finance firm Deerfield Capital Corp. It was also clear in the case facts that if the proposal to expand the board is not approve, Trian would push for six seats, renominating Mr.

Levin and pushing Messrs. Bridgeman, Gilbert and Mandell for open seats (Adamy, 2008). 2. 2 How would the events as to change in the control of the board affect the capital structure of the company? To change a capital structure is a decision to be made by a corporation through its board of directors and sometimes even the stockholders if the law governing corporations require the approval of the stockholders. The decision to change structure is also a function of whether it is advantageous to the company as it balances return and risk (Brigham and Houston, 2002) of the company in relation Wendy’ position in the industry with its competitors.

Case facts provide an instance where prices of Wendy’s share improved which caused Trian not to pursue its plan to buy. As to whether there is a need to change the capital structure could not be determined from the case facts but a change in the composition of the board to influence control is material if the there is a plan to change such structure especially if they have better plans for the company that would improve the financial standing of Wendy which will have a definite effect on stock prices which in turn will maximize the wealth of the stockholders. 3. Conclusion

It may be concluded that there seems to be no clear strategy on what is the purpose of Mr. Peltz group to have a majority control of the board. In the absence of such selling proposition to stock holders like attempting to increase stock prices its plan to acquire greater control of the board may not be as convincing on the part of the other stockholders. Any change in the capital structure of the company should promote a as a rule, the long term health of Wendy which will the effect of increasing stock prices and at the same time maximize the wealth of the stockholders.

Mr. Peltz group or companies must be more transparent in its intention to have control and the benefits that rest of the stockholders could get from giving the control to his group so as to convince the other stockholder to help in allowing Mr. Peltz objective to happen. As to which option should be chosen by Mr. Peltz group from the options is a also a function of whether it is would maximize the wealth of stockholder and hence Mr. Peltz needs to compute its cost of capital on whether there is added share holder value in buying the stocks of Wendy of not.

If there is added value, option is better. But if there is no added value, option 2 is the only possible option.

References: Deadline: March 2 6:58, 5pages , I source apa us 1. Adamy, Janet (2008) Peltz Aims to Expand, Control Wendy’s Board February 12, 2008, Page A13, Wall Street Journal {www document} URL http://benchiang19. com/Hi. doc, Accessed March 1,2008 2. Brigham and Houston (2002) Fundamentals of Financial Management, Thomson South-Western, US

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