Burger King Said to Hold Buyout Talks With 3G Capital

Burger King Said to Hold Buyout Talks With 3G Capital
A Burger King employee prepares cartons of french fries at a Burger King Holdings Inc. fast food restaurant in Indonesia. Photographer: Dimas Ardian/Bloomberg

Burger King Holdings Inc., the second-largest U.S. hamburger chain, is in talks with 3G Capital about a buyout, said a person familiar with the matter. The shares surged the most in more than four years.

The discussions may not lead to a transaction, said the person, who declined to be identified because negotiations are still in progress. The New York Times reported the talks with New York-based 3G earlier today.

Burger King, second only to McDonald’s Corp. in the U.S., had a market value of more than $2.2 billion as of yesterday. A buyout might help Burger King repair relations with franchisees and allow the chain to differentiate itself from McDonald’s, said Janney Capital Markets’ Mark Kalinowski.

“We’ve seen quite a bit of private-equity interest in the restaurant space already this year,” said New York-based Kalinowski, who rates Burger King shares neutral. “At this point in Burger King’s history, it may be better off out of the public eye to solve some of the big challenges it faces.”

Wendy’s/Arby’s Group Inc., the third-biggest U.S. fast-food company, has already attracted interest this year, according to investor Trian Fund Management LP. The shareholder, Wendy’s/Arby’s largest, said in June that it was approached about participating in a takeover of the Atlanta-based chain.

Burger King rose $2.41, or 15 percent, to $18.86 at 4:15 p.m. in New York Stock Exchange composite trading, the most since May 2006, when the company went public.

3G’s History

3G is the investment manager that in 2007 joined with London-based TCI Fund Management LLP to start a proxy contest against CSX Corp., the largest U.S. railroad. Alexandre Behring, the managing director at 3G, eventually won a seat on the CSX board.

3G has shown interest in fast-food chains in the past, disclosing last year that it owned about 4.2 million shares, or about 1 percent, of Wendy’s/Arby’s. 3G’s latest disclosure, of holdings as of June 30, didn’t show any Wendy’s/Arby’s shares.

The firm also has ties to the Brazilian billionaire Jorge Paulo Lemann, 71, and his associates. Lemann and three of his fellow directors at Anheuser-Busch InBev NV, the world’s largest brewer, are directors of 3G, according to a regulatory filing from the beer company. Before joining 3G in 2005, Behring, also Brazilian, spent 10 years at GP Investments, the largest leveraged buyout firm in Latin America, which was founded by Lemann.

Burger King representatives didn’t return a call and an e-mail sent to their press line. Messages by e-mail, phone and fax to 3G Capital weren’t immediately returned.

Eating Out

Burger King, led by Chief Executive Officer John Chidsey, also operates in Latin America, Europe and parts of Asia. Sales growth has slowed in back-to-back years as more consumers opted to eat at home to cope with a deepening economic slump. Burger King spokesman Miguel Piedra declined to comment.

If Burger King were to fetch $19.50 a share, that would give the chain a valuation of about 6.3 times Kalinowski’s 2011 estimate for earnings before interest, taxes, depreciation and amortization, he said. Some restaurant chains have fetched multiples of six to 10, he said.

Total sales fell 1.4 percent to $2.5 billion in the year ended June 30, Burger King said last week. The chain gets about two-thirds of its revenue from the U.S. and Canada.

“Any improvement at BKC would need to be topline-driven and would require significant investment,” Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York, said in an e-mail. She rates Burger King “market perform.”

TPG Inc., Bain Capital LLC and Goldman Sachs Group Inc. bought Burger King from Diageo Plc in 2002 before selling shares to the public again four years later. Those three companies owned about one-third of Burger King as of June 30, according to the latest data compiled by Bloomberg.

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