Bankrupt franchisee NPC International submitted a filing Sunday announcing that it canceled the auction of its Pizza Hut and Wendy’s assets.
NPC, which filed for bankruptcy on July 1, operates roughly 400 Wendy’s units and 900 Pizza Hut units. The brand was previously scheduled to hold three separate auctions for the Wendy’s assets, Pizza Hut assets, and the combined assets. Pizza Hut was scheduled for Monday while the combined auction was set for Tuesday. The Wendy’s auction was scheduled for November 24, but was delayed indefinitely.
It is unclear why the auctions were canceled. According to court documents, 26 active potential buyers conducted due diligence for the Wendy’s assets and 32 active potential buyers conducted due diligence for the purchase of the Pizza Hut assets.
Flynn Restaurant Group, the largest restaurant franchisee in the country, is the stalking horse bidder with an $816 million bid to acquire both the Wendy’s and Pizza Hut restaurants. That bid sets the bar, meaning that any other qualified bid would have to surpass that amount. The purchase agreement is much higher than NPC’s asking price of $725 million. Flynn already operates Arby’s, Applebee’s, Taco Bell, and Panera Bread.
However, standing in Flynn’s way is Wendy’s, which hasn’t given consent for the franchisee to operate its bankrupt stores. The fast-food giant said in a filing that Flynn operates two of its competitors, Arby’s and Panera Bread, and that the two sides haven’t reached a final agreement on key measures, such as on personal guarantees, reimaging and development obligations, store count limitations, or maximum leverage requirements. Wendy’s also took issue with Flynn’s breakup fee, which could’ve been as high as $20.4 million if it didn’t win the assets. In order for another bid to win, it’d have to overcome the $816 million, the breakup fee and an additional $1 million.
In response, Flynn said the issues were solvable and noted that a majority of NPC’s franchise agreements don’t list Arby’s or Panera as a competitor. In addition, Wendy’s has current relationships with franchisees that also own Arby’s and Wendy’s stores, the fast-food giant owned a significant equity stake in Arby’s through 2018, and Wendy’s has historical dual-branding efforts with Arby’s. Pizza Hut, however, has reached an agreement with Flynn.
At least two qualified bids, other than the stalking horse bid, were submitted. Wendy’s announced that it joined a group of pre-qualified franchisees to submit a consortium bid for the Wendy’s assets. Additionally, GenRock Capital Management, the third-largest Pizza Hut franchisee with nearly 200 units, and Grand Mere Capital, which oversees more than 145 Pizza Hut stores, told QSR in an email that they created a joint venture and submitted a bid for the Pizza Hut assets.