The fate of NPC International’s roughly 1,300 Wendy’s and Pizza Hut assets is now resting on mediation between Wendy’s and stalking horse bidder Flynn Restaurant Group.

NPC, which filed bankruptcy in July, operates close to 400 Wendy’s units and around 900 Pizza Hut stores. Flynn Restaurant Group, which submitted an $816 million bid, was approved as the stalking horse bidder, meaning it set the bar for any other qualified bid.

Three auctions were scheduled for the Pizza Hut assets, Wendy’s assets, and the combined assets, but all were canceled. The move appeared to favor Flynn, but the country’s largest restaurant franchisee still doesn’t have consent from Wendy’s to operate its restaurants. Pizza Hut, on the other hand, has approved of Flynn.

Wendy’s has taken issue with Flynn on several accounts. For one, the chain didn’t approve of the breakup fee, or funds that would be owed to Flynn if it didn’t have the winning bid. According to the bidding guidelines, the breakup fee could have been as large as $20.4 million, a figure that any qualified bid would have to overcome in addition to surpassing $816 million.

Wendy’s also took issue with Flynn’s ownership of Arby’s and Panera restaurants, which the burger chain refers to as competitors. The fast-food brand also said it hasn’t reached a final agreement on personal guarantees, reimaging and development obligations, store count limitations, or maximum leverage requirements. Wendy’s, along with a group of pre-qualified franchisees, submitted its own bid for the Wendy’s stores as part of the sales process.

The mediation, governed by Judge Marvin Isgur of the U.S. Bankruptcy Court for the Southern District of Texas, will be aimed at resolving the apparent impasse. A pre-mediation conference is scheduled for Thursday and a non-binding mediation will occur December 18. More conferences will be scheduled as deemed appropriate by Isur in order to “attempt to resolve any issues between the Parties, including with respect to the Stalking Horse Transaction and the rights of the Wendy’s Franchisor.”

In response, Flynn called the issues solvable, but also argued that Wendy’s has allowed other franchisees to operate Arby’s and Panera units and noted more than 363 of NPC’s franchise agreements don’t name Arby’s or Panera as competitors. In addition, the franchisee agreed to invest significant capital in both brands and other terms like accelerated schedules for restaurant development, renovations, guarantees, and “operating covenants designed to alleviate stated competitive concerns and concerns about the relative size of the Flynn restaurant portfolio.”

Fast Food, Finance, Franchising, Story, Wendy's